) 3.3, .1» “Mn; . J H» ' v 'fifi'fé A. ‘ 45‘ mi: If:- ;::"'.I ‘gg’jfi 35' ’2 " *fifiifflpgfim ; “ ’5 f" \. .z I v- " 33:13.??339 '55:; 4’61»! 3;??? '31,» 6:33:21: 3. .gc, ‘ , ., - 5’ 3’ " d4 4:; 3;; a 3341 . £11? . w figfirirsé‘va‘r. '* : é. ‘ N e 2:2..- KW 10o? This is to certify that the dissertation entitled INTERORGANIZATIONAL GOVERNANCE RESPONSE STRATEGIES TO ACTIVE AND PASSIVE EX POST OPPORTUNISM: INCREASED UNDERSTANDING VIA VALUE-BASED BOUNDARY CONSTRAINTS presented by STEVEN HEAD SEGGIE has been accepted towards fulfillment of the requirements for the PhD. degree in Marketing , 7 9‘”. \mwl LumrmI \tt [I’M “\ Mfijfii Professor’s Si ’ ture -— '7/ 3 I7 IhL /< y 5} l I / / Date MSU is an affirmative-action, equal-opportunity employer LIBRARY Michigan State I‘JI'II‘..'9?'3IL‘/ PLACE IN RETURN BOX to remove this checkout from your record. To AVOID FINES return on or before date due. MAY BE RECALLED with earlier due date if requested. DATE DUE DATE DUE DATE DUE 6/07 p:/ClRC/Date0ue.indd—p.1 INTERORGANIZATIONAL GOVERNANCE RESPONSE STRATEGIES TO ACTIVE AND PASSIVE EX POST OPPORTUNISM: INCREASED UNDERSTANDING VIA VALUE-BASED BOUNDARY CONSTRAINTS By Steven Head Seggie A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Marketing and Supply Chain Management 2007 ABSTRACT INTERORGANIZATIONAL GOVERNANCE RESPONSE STRATEGIES TO ACTIVE AND PASSIVE Ex POST OPPORTUNISM: INCREASED UNDERSTANDING VIA VALUE-BASED BOUNDARY CONSTRAINTS By Steven Head Seggie This dissertation investigates the governance responses of buyer firms to active and passive ex post opportunism by their supplier partners. The potential for ex post opportunism in an interorganizational relationship is an assumption of transaction cost economics, and this dissertation examines buyer firms’ tolerance of active and passive ex post opportunism. In addition, the dissertation examines the role of the value (both economic value and strategic value) of the interorganizational relationship as a safeguard to preserve the relationship when active and passive ex post opportunism accumulate. The dissertation examines the accumulation of active and passive ex post opportunism in an interorganizational buyer-supplier relationship and the argument is made that ceteris paribus, firms will tolerate a greater accumulation of passive ex post opportunism as opposed to active ex post opportunism before exiting the relationship. In addition, it is argued that in interorganizational buyer-supplier relationships where there is high strategic value for the receiving party of the ex post opportunism, when the receiving party of the ex post opportunism exits the relationship they will exit via vertical integration. The results of the study indicate support for the hypothesized greater tolerance of the accumulation of passive ex post opportunism than active ex post opportunism. In addition, results also demonstrate that when there is high economic value and high strategic value derived from the relationship by the receiving party of the active or passive ex post opportunism, then this party will tolerate a greater accumulation of the active or passive ex post opportunism than when there is low economic value and low strategic value. However, the results do not find support for the hypothesized exit via vertical integration when strategic value is high, instead indicating that firms exit Via reverting to market exchange irrespective the level of economic value and strategic value. Copyfight by Steven Head Seggie 2007 DEDICATION This is dedicated with love and gratitude to my wife Nevra. Without your support, your belief and your love, this would not have been possible. ACKNOWLEDGEMENTS This dissertation would not have been possible without the support of many people. Many thanks to my co-chairs, S. Tamer Cavusgil and David A. Griffith, who read my revisions, provided me guidance and offered incredible support. I would also like to thank the members of my committee, Sandy D. J ap, Seyda Deli gonul and Ahmet Kirca who Offered expert guidance and constant encouragement. I would also thank Joe Sandor for help in contacting executives for some of the pre-testing in my study. I would also like to acknowledge the help of the Institute for Supply Management for providing access to its members. Finally, I would thank my family for all the support they have provided me to get me to the point I am at today. To my parents for the unconditional love and support. To my in- laws for the constant encouragement and support. And finally to my wife Nevra for being at my Side when I needed you the most. Vi TABLE OF CONTENTS LIST OF TABLES ............................................................................. CHAPTER 1 INTRODUCTION ............................................................................. Background ............................................................................. Purpose of the Study .................................................................. CHAPTER 2 THEORETICAL FOUNDATION ........................................................... Transaction Cost Economics ......................................................... Safeguarding Problem ....................................................... Adaptation Problem .......................................................... Performance Evaluation Problem .......................................... Transaction Frequency ....................................................... Opportunism in Interorganizational Relationships ............................... CHAPTER 3 THEORETICAL MODEL AND HYPOTHESES ......................................... Ex Post Opportunism ................................................................. Responses to Active and Passive Ex Post Opportunism in Long-term Interorganizational Buyer-Supplier Relationships ................................. Hypothesis Development ............................................................ Cost of the Accumulation of Active and Passive Ex Post Opportunism .................................................................. The Role of Economic Value and Strategic Value as a Safeguard in Interorganizational Buyer-Seller Relationships .......................... Influence of Strategic Value on the Exit Decision ....................... Control Variables ............................................................. CHAPTER 4 RESEARCH DESIGN ........................................................................ Research Methods ..................................................................... Phases of the Study ..................................................................... Phase One ....................................................................... Phase Two ..................................................................... Phase Three .................................................................... Phase Four ...................................................................... Phase Five ..................................................................... CHAPTER 5 RESULTS OF THE ANALYSIS ............................................................. Research Hypothesis 1 ............................................................... Research Hypothesis 2 ................................................................ Vii 32 35 38 39 40 52 52 54 55 56 57 60 62 63 63 63 63 74 75 78 82 87 87 87 Research Hypothesis 3 ................................................................. 89 CHAPTER 6 THEORETICAL AND MANAGERIAL CONTRIBUTIONS OF THE STUDY. . .. 92 Theoretical Contributions of the Study .............................................. 92 Managerial Implications for the Study .............................................. 97 Limitations and Future Directions .................................................. 99 APPENDICES ................................................................................. 102 APPENDIX 1: Email From Clinical Professor of Purchasing Management to Purchasing Professionals Soliciting Initial Help With Study ................ 103 APPENDIX 2: Follow Up Email Soliciting Specific Support From Purchasing Managers .................................................................. 104 APPENDIX 3: Outline of Study as Sent to Participants in Phase One. . . . . 105 APPENDIX 4: Follow Up Email Soliciting Support and Reminding Participants of the Approaching Deadline ......................................... 107 APPENDIX 5: Measures of Opportunism ......................................... 108 APPENDIX 6: Active and Passive Ex Post Opportunistic Behaviors Derived From the Measures of Opportunism ..................................... 112 APPENDIX 7: Real Life Examples of Ex Post Opportunism by Suppliers: Split Into Active Ex Post Opportunism and Passive Ex Post Opportunism... 113 APPENDIX 8: Email to Purchasing Executives Soliciting Further Help in Phase One .............................................................................. 117 APPENDIX 9: Scenario and Question Sent to Purchasing Managers During Phase One ..................................................................... 1 18 APPENDIX 10: Question and Definitions of Strategic Value and Economic Value .................................................................................... 119 APPENDIX 11: Follow Up Email to Purchasing Managers Requesting Participation in the Evaluation of the Realism of Scenarios and the Appropriateness of the Definitions of Economic Value and Strategic Value. 120 APPENDIX 12: Finalized Scenario Incorporating Feedback From Purchasing Professionals ............................................................. 121 APPENDIX 13: Finalized Definitions of Strategic Value and Economic Value Incorporating Feedback From Purchasing Professionals ................ 122 APPENDIX 14: Consequence, Active Ex Post Opportunism and Passive Ex Post Opportunism ................................................................. 123 APPENDIX 15: E-mail to Purchasing Managers Requesting They Identify Active and Passive Ex Post Opportunistic Behaviors ............................ 126 APPENDIX 16: Pre-Test of Consequences ....................................... 127 APPENDIX 17: Results of Analysis of Variance for Equivalence of Consequences .......................................................................... 1 28 APPENDIX 18: Pre-test of Ex Post Opportunistic Behaviors... 129 APPENDIX 19: Results of Analysis of Variance for Active VersUs PasSive Opportunistic Behaviors ............................................................. 131 APPENDIX 20: Results of Analysis of Variance of Intensity of Active Ex Post Opportunistic Behaviors ........................................................ 132 viii APPENDIX 21: Results of Analysis of Variance of Intensity of Passive Opportunistic Behaviors ............................................................. 134 APPENDIX 22: Examples of Active and Passive Ex Post Opportunistic Behaviors With Consequences ..... . ................................................ 136 APPENDIX 23: Pretest of Treatments for Scenario .............................. 139 APPENDIX 24: Results of Analysis of Variance of Intensity of Passive Opportunistic Behaviors and Consequences ....................................... 142 APPENDIX 25: Results of the Analysis of Variance of Intensity of Active Opportunistic Behaviors and Consequences ....................................... 144 APPENDIX 26: Results of Analysis of Variance for Active Versus Passive Opportunistic Behaviors Consequences ............................................ 145 APPENDIX 27: Script for Pilot Test ................................................ 146 APPENDIX 28: Script for Active Ex Post Opportunism Treatment ........... 147 APPENDIX 29: Script for Passive Ex Post Opportunism Treatment .......... 152 APPENDIX 30: Post-Phase Three Questions ..................................... 157 APPENDIX 3]: Script for Active Ex Post Opportunism High Economic Value High Strategic Value Treatment ............................................. 158 APPENDIX 32: Script for Active Ex Post Opportunism Low Economic Value Low Strategic Value Treatment ............................................. 163 APPENDIX 33: Script for Passive Ex Post Opportunism High Economic Value High Strategic Value Treatment ............................................. 168 APPENDIX 34: Script for Passive Ex Post Opportunism Low Economic Value Low Strategic Value Treatment .............................................. 173 APPENDIX 35: Post-Phase Four Questions ....................................... 178 APPENDIX 36: Script for Active Ex Post Opportunism High Economic Value Low Strategic Value Treatment ............................................. 179 APPENDIX 37: Script for Active Ex Post Opportunism Low Economic Value High Strategic Value Treatment ............................................. 184 APPENDIX 38: Script for Passive Ex Post Opportunism High Economic Value Low Strategic Value Treatment ............................................. 189 APPENDIX 39: Script for Passive Ex Post Opportunism Low Economic Value High Strategic Value Treatment ............................................. 194 APPENDIX 40: Analysis of Passive Versus Active Treatment Groups (Hypothesis 1) ......................................................................... 199 APPENDIX 41: Analysis of Active Ex Post Opportunism High Economic Value High Strategic Value Versus Active Ex Post Opportunism Low Economic Low Strategic Value Treatment Groups (Hypothesis 2a) ........... 200 APPENDIX 42: Analysis of Passive Ex Post Opportunism High Economic Value High Strategic Value Versus Passive Ex Post Opportunism Low Economic Low Strategic Value Treatment Groups (Hypothesis 2b) ........... 201 REFERENCES ................................................................................. 202 ix LIST OF TABLES Table Caption Page 1 Summary of Selected Transaction Cost Economics Studies ............ 12 2 Studies Employing Opportunism as an Independent or Dependent Variable ........................................................................ 42 14-1 Consequence, Active Ex Post Opportunism and Passive Ex Post Opportunism ................................................................... 123 17-1 Analysis of Variance (ANOVA) for Consequences ..................... 128 19-] Analysis of Variance (ANOVA) Active Versus Passive Opportunistic Behaviors ...................................................... 131 20-1 Analysis of Variance (ANOVA) of Intensity of Active Ex Post Opportunistic Behaviors ...................................................... 132 20-2 Multiple Comparisons TUKEY HSD ...................................... 133 21-1 Analysis of Variance (ANOVA) of Intensity of Passive Opportunistic Behaviors ...................................................... 134 21-2 Multiple Comparisons TUKEY HSD ...................................... 135 24-1 Analysis of Variance (ANOVA) of Intensity of Passive Opportunistic Behaviors and Consequences .............................. 142 24-2 Multiple Comparisons TUKEY HSD ...................................... 143 25-1 Analysis of Variance (ANOVA) of Intensity of Active Opportunistic Behaviors and Consequences ................................................ 144 26—1 Analysis of Variance (ANOVA) for Active Versus Passive Opportunistic Behaviors and Consequences .............................. 145 40-1 Test of Homogeneity of Variance (Hypothesis 1) ........................ 199 40-2 Descriptive Statistics (Hypothesis 1) ....................................... 199 40-3 Analysis of Variance (ANOVA) (Hypothesis 1) ......................... 199 41—1 41-2 41-3 42-1 42—2 42-3 424 Test of Homogeneity of Variance (Hypothesis 2a) ....................... Descriptive Statistics (Hypothesis 2a) ...................................... Analysis of Variance (ANOVA) (Hypothesis 2a) ........................ Test of Homogeneity of Variance (Hypothesis 2b) ...................... Descriptive Statistics (Hypothesis 2b) ..................................... T-Test for Equality of Means Equal Variances Not Assumed (Hypothesis 2b) ............................................................... Analysis of Variance (ANOVA) (Hypothesis 2b) ........................ xi 200 200 200 201 201 201 201 CHAPTER 1 Introduction Background The threat of ex post opportunism (i.e., opportunism during an ongoing relationship) by partners in long-term interorganizational relationships (Williamson, 1975) compels firms to adopt governance structures to counteract this threat (Anderson and Coughlan, 1987; Heide and John, 1990). Although the movement toward fostering long-term relationships has enhanced performance, scholars (e. g., Anderson and J ap, 2005; J ap and Anderson, 2003) note that instances of ex post opportunism often arise in long-term relationships. Theoretically, the potential for ex post opportunism in interorganizational relationships is one of the key underlying assumptions of transaction cost economics (Williamson, 1975). Transaction cost economics (TCE) is the dominant paradigm in the study of interorganizational governance (Ghosh and John, 1999) and proponents of TCE explain the potential existence of ex post opportunism in long-term relationships as a result of a small numbers condition that develops in the relationship (Williamson, 1975). In a small numbers condition, partners to the relationship have an advantage with regard to continuation of the relationship, as it is difficult for firms external to the relationship to compete and bid against either of the partners. Lacking outside bids, firms become vulnerable to potential ex post opportunistic behavior from their partners (Williamson, 1975,1985) In spite of the prevalence of ex post opportunism in interorganizational relationships and the fact that the potential existence of ex post opportunism in these relationships is a key underlying assumption of TCE, reviews of the TCE literature (e.g., Macher and Richman, 2005; Rindfleisch and Heide, 1997) show that few studies have directly measured ex post opportunism, its consequences or responses to it. Of the studies that are the exception to this, there are three major concerns: (1) there are contradictory findings regarding appropriate responses to ex post opportunism; (2) there is a lack of conceptual consistency with regard to ex post opportunism; and (3) although long-term in nature, ex post opportunism is primarily analyzed via cross-sectional studies therefore only implying causality rather than testing causality. These are all explained in greater detail following. Results from studies examining appropriate responses to ex post opportunism have been inconsistent. TCE arguments caution to protect against ex post opportunism in interorganizational relationships. Some studies support the traditional TCE logic that opportunism has a deleterious impact on the performance of a relationship (e. g., Parkhe, 1993) and thus should not be tolerated. However, other studies not only demonstrate that firms tolerate a certain amount of ex post opportunism by partners (e. g., Bergen, Heide, and Dutta, 1998), but also that it is optimal for firms to tolerate some level of ex post opportunism (e.g., Dutta, Bergen, and John, 1994). This inconsistency of results within the extant TCE literature may be partially attributable to lack of specification of the construct of opportunism itself as discussed next. Scholars have recently argued that there is a lack of conceptual consistency with regard to what behaviors actually constitute ex post opportunism (Wathne and Heide, 2000). The extant literature suggests a broad range of behaviors including behaviors where firms make an active effort to behave opportunistically (e.g., Gundlach, Achrol, and Mentzer, 1995; J ap and Anderson, 2003; Parkhe, 1993) and also behaviors where firms withhold efforts and are thus opportunistic (e. g., Anderson, 1988; Dahlstrom and Nygaard, 1999; John, 1984). In response to this lack of conceptual clarity, Wathne and Heide (2000) conceptualized two main forms of ex post opportunism: active ex post opportunism and passive ex post opportunism. Active ex post opportunism is when a firm engages in a particular behavior to its own benefit that violates certain explicit or implicit restrictions in the relationship or engages in forced renegotiation to its own benefit in response to new circumstances (Wathne and Heide, 2000). This is otherwise referred to as ex post opportunism by commission. These behaviors include acts such as lying (e.g., Lee, 1998; Provan and Skinner, 1989; Rokkan, Heide and Wathne, 2003), breaching formal or informal agreements (e.g., Achrol and Gundlach, 1999; Rokkan et al. 2003), alteration of facts (e. g., John 1984; Parkhe, 1993), making false accusations (e.g., Jap and Anderson, 2003), exaggerating difficulties (e.g., Anderson, 1988; Provan and Skinner, 1989), and using unexpected events to extract concessions from partners (e.g., Rokkan et al., 2003). Passive ex post opportunism is when a firm, for its own benefit, evades obligations previously agreed upon either explicitly or implicitly or refuses to adapt to new circumstances (Wathne and Heide, 2000). This is otherwise referred to as ex post opportunism by omission. This may include firms not doing as promised (Anderson, 1988; Dahlstrom and Nygaard, 1999; J ap and Anderson, 2003; John, 1984), hiding information (Dahlstrom and Nygaard, 1999), not telling the whole truth (Anderson, 1988); neglecting to fulfill obligations (Lee, 1998), not providing proper notification (J ap and Anderson, 2003) and not accepting responsibility (Jap and Anderson, 2003). Although Wathne and Heide (2000) theorize the existence of the two different forms of ex post opportunism and different outcomes, as far as I am aware, there has yet to be any published studies testing these different forms. In this dissertation it is argued that the delineation of the specific types of opportunism may provide for greater clarity of response to ex post opportunism. Furthermore, in this dissertation it is stated that contradictory findings related to the appropriate response to ex post opportunism are partially attributable to models that have been conceptually underspecified. Specifically, the extant ex post opportunism literature neglects the concept of value in an interorganizational relationship, instead focusing on minimizing cost. However, Williamson implies the importance of value through his direct link of TCE to Coase’s theorem (Williamson, 1996b) and his implication that interorganizational relationships have both a strategic and economic value (Williamson, 1975). In addition, other scholars (e.g., Ghosh and John, 1999; Kaufmann, 1987) have suggested that relationships should be analyzed from the perspective of value. In Spite of this focus in theoretical works of TCE on the importance of the different types of value of interorganizational relationships, the extant empirical TCE and more specifically, ex post opportunism literature, does not reflect this. Here it is argued that through the incorporation of economic and strategic value as boundary constraints to the model, greater Specificity in the timing of exit as well as the type of exit (i.e., through market exchange or vertical integration) can be determined. Finally, although TCE is conceptually longitudinal, studies of ex post opportunism have been almost exclusively empirically cross-sectional (Macher and Richman, 2005; Rindfleisch and Heide, 1997), thus unable to methodologically match the conceptual nature of the theory, possibly leading to inconsistencies in findings. Studying a longitudinal problem with a cross-sectional approach naturally hampers the validity of findings and in addition, neglects the accumulative aspects of the phenomenon. Conducting an analysis of active and passive ex post opportunism in a longitudinal experiment (cf., Lehmann and Pan, 1994) could assist in advancing understanding in this area. Purpose of the Study This dissertation intends to address the major concerns highlighted in the introduction. In this dissertation the responses of buyers to the accumulation of both active and passive ex post opportunism by suppliers over the course of an interorganizational relationship under varying boundary conditions of value are examined. Thus, ex post decisions by buyers in ongoing relationships regarding changes in governance structure in response to this accumulation are examined, therefore acknowledging the fact that interorganizational relationships change over time and governance decisions can change over a relationship (Williamson, 1975). As such, this dissertation will provide answers to the following questions: (1) Do buyers respond differently to the accumulation of active ex post opportunism as opposed to the accumulation of passive ex post opportunism by suppliers in long-term interorganizational relationships? (2) What accumulation of either active or passive ex post opportunism do buyers tolerate before changing the governance structure and how is this impacted by the various boundary conditions of value? (3) Under what boundary conditions do buyers exit through vertical integration and under what boundary conditions do they exit through market exchange? This remainder of this dissertation is organized as follows. In Chapter 2, an overview of transaction cost economics and ex post opportunism is prOvided. In Chapter 3, the theoretical model and hypotheses are laid out. This model and hypotheses are developed from the transaction cost economics paradigm. Chapter 4 presents the research design of the study including the in-depth interviews, quantitative pre-testing, pilot study and the longitudinal experiment. The in-depth interviews are employed to inform the scenarios and ex post opportunistic behaviors utilized in the longitudinal experiment. In Chapter 5 the results are presented, and in Chapter 6 the managerial and theoretical contributions of the study are discussed. CHAPTER 2 The Theoretical Foundation The possibility that ex post opportunism may occur in interorganizational buyer- supplier relationships is an underlying assumption of transaction cost economics (Williamson, 1975, 1985, l996b). An overview of transaction cost economics is proffered, followed by a theoretical examination of the construct of opportunism. Transaction Cost Economics Transaction cost economics is part of the New Institutional Economics and builds upon the work of Coase (193 7) to state that firms are governance structures and that transaction costs rather than production costs should be the focus of analysis (Williamson, 1975). In TCE the transaction is the unit of analysis and the focus of the theory is on minimizing transaction costs through different forms of governance (Williamson, 1975, 1979, 1985, 1996b). These different forms of governance are market exchange, vertical integration and hybrid governance forms. The preferred governance form is that which minimizes the transaction costs. The theory rests upon four dimensions of transactions and three assumptions (Williamson, 1975). The dimensions of transactions are asset specificity, environmental uncertainty, behavioral uncertainty and transaction frequency and the assumptions are bounded rationality, opportunism, and risk neutrality. These are explained in greater detail next. The first dimension of transactions in TCE is asset specificity. This is the degree to which assets are particular to a transaction and have limited value outside of that transaction (Williamson, 1991). As asset specificity increases, the ability to redeploy the asset elsewhere decreases and this leads to a safeguarding problem due to the potential for opportunistic behavior. TCE predicts that a transaction with high asset specificity will take place in a hierarchical form of governance, with low asset specificity will take place in the market, and with intermediate asset specificity will take place in hybrid forms of governance (Williamson, 1991). For example, Proctor & Gamble has employees based at Wal-Mart headquarters in Arkansas to coordinate the sale of P&G products in Wal-Mart stores across the United States and beyond (Rokkan, Heide, and Wathne, 2003). These employees constitute a specific investment by P&G in its relationship with Wal-Mart. The second dimension is environmental uncertainty, sometimes referred to as external uncertainty. Environmental uncertainty is defined as “unanticipated changes in circumstances surrounding an exchange” (Noordewier, John, and Nevin, 1990, p.82). The existence of environmental uncertainty leads to the adaptation problem in that partners to the exchange have difficulty in adapting agreements to deal with the changing circumstances (Rindfleisch and Heide, 1997). Ongoing renegotiations of contracts to adjust to the new realities caused by environmental uncertainty will lead to substantial transaction costs. The third dimension is behavioral uncertainty, sometimes referred to as internal uncertainty. Behavioral uncertainty is when “performance cannot be easily verified ex post” (Rindfleisch and Heide, 1997, p.31). The existence of behavioral uncertainty leads to the performance evaluation problem in that partners have difficulty in evaluating whether or not a partner has complied with an agreement. Gathering the necessary information to check for compliance with agreements also introduces substantial transaction costs (Rindfleisch and Heide, 1997). The theory states that the level of both forms of uncertainty is only of importance when there is a non-trivial degree of asset specificity (David and Han, 2004). As uncertainty increases in the presence of a non-trivial degree of asset specificity, hybrid forms and hierarchy become more attractive as continuity is important and market governance is costly as a result of haggling and maladaptiveness (Williamson, 1985). However, when uncertainty is high in the presence of non-trivial asset specificity, TCE predicts that both market governance and hierarchy are preferable to hybrid forms of governance. This is because hybrid forms require mutual consent from parties to make adaptations whereas under market exchange adaptations can be made unilaterally and under hierarchy adaptations can be made by fiat (Williamson, 1991). The final dimension is the frequency of transaction, i.e. how often the transaction takes place. This is also a conditional effect, in that when there is high asset specificity, the theory predicts a high frequency of transactions is more effectively managed in a hierarchical governance structure. This is because it is easier to recuperate the costs of hierarchical governance when the transactions of concern are large and recurring (Williamson, 1985). The first behavioral assumption of TCE is that decision makers are limited by bounded rationality. That is to say, the human mind is limited in capacity and therefore not capable of providing objectively rational solutions to complex problems. Individuals intend to behave rationally, however, cognitive limitations necessitate that individuals create a simplified model of the situation and direct behavior rationally with regard to this simplified model (Simon, 1957). TCE specifies that bounded rationality creates problems under conditions of environmental uncertainty and behavioral uncertainty (Williamson, 1975; 1985; 1996). The second behavioral assumption of TCE is that a party to an exchange may behave opportunistically. Williamson (1975; 1985) defines opportunism as self seeking interest with guile including behaviors such as lying, stealing, and breaking agreements. Opportunistic behavior may occur ex ante, i.e., during the relationship initiation stage, or ex post, i.e., during the relationship. Opportunism poses the greatest problems when one party invests assets specific to a transaction that have limited value outside the transaction. In such a situation the party that invests these assets is vulnerable to opportunistic behavior by its partner, as it has limited recourse to the market as a protection against this opportunism (Williamson, 1975; 1985; 1996). The final behavioral assumption of TCE is that parties to a transaction are risk- neutral (Williamson, 1985). There is no clear definition of risk-neutrality in the TCE literature and as a result scholars have used the definition of risk-neutrality as proffered by neoclassical economists (Chiles and McMackin, 1996). That is to say, the assumption of risk-neutrality is that parties are neither risk seeking nor risk averse, instead occupying a position between these two extremes where the parties neither prefer fluctuating profits over certain profits (risk seeking) or certain profits over fluctuating profits (risk averse) (Chiles and McMackin, 1996) assuming the expected average of both is equal. This assumption of risk neutrality ensures that there is a single point of asset specificity where firms will switch from market to hierarchical governance. There have been many recent reviews of the TCE literature ranging from literature reviews focusing mainly on marketing (e.g., Rindfleisch and Heide, 1997), to 10 more general literature reviews (e. g., David and Han, 2004; Macher and Richman, 2005) to a recent meta-analysis (Geyskens, Steenkamp, and Kumar, 2006). All of these reviews generally support Williamson’s (1996a) assertion that “[T]ransaction cost economics is an empirical success story” (p.55). TCE is the dominant paradigm in interorganizational relationship studies in marketing (Ghosh and John, 1999) and as such many marketing studies have tested the fundamental propositions of TCE. Additionally, there are many studies in non-marketing business disciplines including finance and economics that have tested these fundamental propositions. These studies have used the theory of TCE to examine different contexts including backward and forward integration; use of a direct salesforce or manufacturer’s representatives; choice of type of entry mode; and quasi- vertical integration, various levels of vertical coordination and joint action. Table 1 presents a summary of selected studies, ordered by first author’s surname, that employ TCE. ll Table 1: Summary of Selected Transaction Cost Economics Studiesl Author Context Independent Dependent Findings (year) Variables Variables Adler, Scherer, Contracts in B2B Asset specificity; Type of contract Asset specificity, Barton & buyer-seller Uncertainty; uncertainty, and Katerberg exchanges Contract contract (1998) incompleteness incompleteness predict type of contract. Anderson Use of a direct Asset specificity; Direct salesforce Two of seven asset (1985) salesforce Behavioral versus specificity measures (salesforce uncertainty; manufacturers' are positively related integration) or Interaction of representatives to salesforce manufacturers' environmental integration. representatives uncertainty and asset specificity: Behavioral uncertainty Transaction and environmental frequency uncertainty x asset specificity are positively related to salesforce integration. Anderson Opportunism in Asset specificity: Opportunism Asset specificity is (1988) integrated and Environmental positively related to independent uncertainty; opportunism. sales forces Behavioral uncertainty Behavioral uncertainty is positively related to opportunism. Type of sales force; Opportunism Integrated sales forces Company and sales exhibit less person goal opportunism than congruence: manufacturers’ reps. Monitoring of salesperson Salesperson and company goal congruence decreases opportunism. Anderson & Use of Asset specificity Integrated versus Asset specificity is Coughlan independent or independent positively related to (1987) integrated channel for the use of an integrated channels of international channel. distribution in international market entry market entry I The format of the table was adapted from Rindfleisch and Heide (I997). 12 Table 1 (continued) Author Context Independent Dependent Findings Jear) Variables Variables Anderson & Use of a direct Asset specificity; Direct salesforce Asset specificity and Schmittlein salesforce Environmental versus behavioral uncertainty (1984) (salesforce uncertainty; manufacturers' are positively related integration) or Behavioral representatives to salesforce manufacturer's uncertainty; integration. representatives Transaction frequency; Interaction of environmental uncertainty and asset specificity; Interaction of behavioral uncertainty and asset specificity Anderson & Commitment of Asset specificity; Manufacturers' Distributor asset Weitz (1992) manufacturers Perception of asset commitment to the specificity and and distributors specificity dyad; Distributors' manufacturer asset in channel commitment to the specificity are relationships dyad positively related to distributor and manufacturer commitment. Manufacturer and distributor perception of asset specificity is positively related to the perception of other party's commitment. Antia & Contract Asset specificity; Contract Asset specificity is Frazier (2001) enforcement in Environmental enforcement positively related to interfirm channel uncertainty; contract enforcement. relationships Interaction of asset specificity and The interaction of asset environmental specificity with uncertainty; relationalism weakens Interaction of asset specificity and relationalism. 13 the inverse relationship between relationalism and contract enforcement. Table 1 (continued) Author Context Independent Dependent Findings Jyear) Variables Variables Aulakh & Channel Asset specificity; Channel integration Environmental Kotabe (1997) integration in Environmental uncertainty is foreign markets uncertainty negatively related to channel integration. As asset specificity increases firms use a market option rather than an intermediate opfion. Balakrishnan Make or buy in Technological Vertical integration Integration is affected & Wernerfelt BZB uncertainty negatively by (1986) relationships technological uncertainty. Barney, Legal liability Technological Vertical integration Technological Edwards & and vertical uncertainty; uncertainty is Ringleb (1992) integration Demand positively related uncertainty while demand uncertainty is negatively related to vertical integration. Bello & Performance of Asset specificity Flexibility Asset specificity is Gilliland the export positively related to (1997) channel flexibility. Bensaou & Antecedents of Architectural Asset specificity Task complexity, Anderson asset specificity interdependency: technological (1999) in BZB buyer- Task complexity: uncertainty, and scope supplier Size; Market share; of the relationship are relationships External positively related to uncertainty; relationship specific Technological investments. uncertainty; Supply concentration; Supplier market share, Resource resource standardization; standardization, Relationship scope; Relationship age; Suppher performance reputation: Institutional environment 14 supplier reputation, and institutional (Japan versus US) environment are negatively related to relationship specific investments. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Bergh & Governance Environmental Portfolio Tentative support that Lawless (1998) choice under uncertainty restructuring increases in uncertainty environmental uncertainty lead to divestiture and decreases lead to acquisition. Brouthers Entry mode Transaction costs; Entry mode Transaction cost is (2002) selection Asset specificity positively related to wholly owned modes of entry. Brouthers, Entry mode Asset specificity; Entry mode; Asset specificity and Brouthers, & selection Behavioral economic uncertainty Werner (2003) uncertainty; are positively related Economic to wholly owned uncertainty; modes of entry. Interaction of asset specificity and Performance Firms that follow TCE economic prescriptions have uncertainty better performance than those that do not. Bucklin & Organization of Asset specificity; Power imbalance Asset specificity and Sengupta co-marketing Transaction transaction frequency (1993) alliances frequency; are positively related Behavioral to power imbalance. uncertainty Buvik & Vertical Behavioral Ex post transaction Ex post transaction Andersen coordination in uncertainty; Asset costs costs are higher in (2002) international specificity international B2B purchasing relationships than in relationships domestic relationships. 15 When there is substantial asset specificity vertical coordination reduces ex post transaction costs more in international than domestic purchasing relationships. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Buvik & John Vertical Interaction of Ex post transaction Frequency of (2000) coordination in environmental costs transaction leads to 828 purchasing uncertainty and greater ex post relationships asset specificity: transaction costs. Asset specificity; Frequency of Vertical coordination transaction is beneficial in the face of uncertainty and low specific assets. More vertical coordination when uncertainty and specific assets are absent increases governance costs. Buvik & Reve Deployment of Asset specificity F ormalized F ormality same in (2001) specific assets in purchase cases with mutual -low BZB purchasing contracting specificity and relationships unilateral buyer-held 16 specific assets. Formality greater with unilateral supplier-held specific assets than with mutual low asset specificity. Higher formality with unilateral supplier-held than unilateral buyer- held specific assets. Formality is higher with higher than with lower mutual specific assets. Formality is higher with mutual high asset specificity than with unilateral buyer-held specific assets. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Cannon & Buyer-seller Asset specificity Customer Mutually adaptive Perreault relationships in satisfaction; relationships (i.e. with (1999) business markets Customer high mutual asset evaluation of specificity) are supplier positively related to performance customer satisfaction and customer evaluation of supplier performance. Celly, BZB purchasing Technological Asset Specificity Technological Spekman & arrangements in uncertainty; uncertainty and Kamauff the Pacific Rim Competition; importance of supplier (1999) Importance of responsiveness are supplier positively related to responsiveness; asset specificity. Lack of importance of traditional purchasing criteria: Asset specificity Relationship Asset specificity is stability; Buyer positively related to information sharing relationship stability and buyer information sharing. Coles & Make or buy Asset specificity: Vertical integration Asset specificity is Hesterly (1998) decisions in Interaction of positively related to public hospitals environmental vertical integration. uncertainty and asset specificity The interaction of environmental uncertainty and asset specificity is positively related to vertical integration. Combs & Interfirm Asset specificity Interfirm Asset specificity is Ketchen (1999) cooperation and cooperation positively related to performance interfirm cooperation. Crocker & Design and Uncertainty Contract length Increases in Masten (1988) duration of long— uncertainty shorten term contractual relationships 17 average contract length Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Dutta, Bergen, Plural Behavioral Single versus dual Behavioral uncertainty Heide & John distribution uncertainty channels is positively related to (1995) systems the use of dual channels. Dutta, Heide & Issues of vertical Behavioral Deployment of Behavioral uncertainty Bergen (1999) territorial uncertainty; Asset territorial is negatively related restrictions specificity restrictions while asset specificity is positively related to territorial restrictions. Dutta & John Competition as a Asset specificity Single or multiple Asset specificity is (1995) safeguard in vendor positively related to TCE multiple vendors. Number of Supplier's selling Monopoly sellers suppliers price charge higher prices than sellers in duopoly. Dyer (1996) Supplier Asset specificity Speed of new Human asset networks in the product Specificity is positively auto industry development; related to quality and Quality; Inventory new model cycle time. cost Interfirm asset specificity is positively related to profitability. Dyer (1997) Minimization of Asset specificity Transaction costs Findings do not transaction costs support the TCE and propositions. maximization of transaction value Dyer & Chu Supplier-buyer Trust; Transaction costs Trust negatively (2003) relationships in Trustworthiness related to ex ante and the United States, Japan, and Korea 18 ex post transaction costs in pooled sample. and to ex post transaction costs in US sample. Trustworthiness is negatively related to ex post transaction costs. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Erramilli & International Asset specificity Control in entry When asset specificity Rao (1993) entry mode for mode is low service firms service firms share control. This is moderated by country risk, firm size and separability of production and consumption. F ein & Credible Asset Specificity Territory Asset specific Anderson commitments in selectivity granted investments by (1997) BZB distribution to distributor by distributors are channels supplier. positively related to manufacturers granting territory selectivity. Brand selectivity Asset specific granted to supplier investments by by distributor. suppliers are positively related to distributors granting brand selectivity. Folta (1998) Trade-off Technological Equity Technological between uncertainty; collaboration uncertainty and the administrative Interaction of versus interaction between control and technological collaborations technological commitment uncertainty and uncertainty and asset asset specificity specificity are positively related to the use of equity collaboration. Ganesan (1994) B28 buyer-seller Asset specificity Dependence, Vendors' perception of relationships credibility, retailer’s transaction benevolence specific investments 19 has a positive effect on vendors‘ perception of retailer dependence. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Gatignon & Ownership of Asset specificity; Equity ownership Environmental Anderson foreign Environmental of foreign uncertainty is (1988) subsidiaries of uncertainty; subsidiary (%) negatively related US multinational Behavioral while behavioral companies uncertainty; uncertainty is Interaction of asset positively related to specificity and percentage of equity environmental ownership. uncertainty Total versus partial Under high asset ownership of specificity, high subsidiary behavioral and low environmental uncertainty, total ownership is likely. Heide & John Dependence Asset specificity Offsetting of Increased asset (1988) balancing in B2B investments. specificity is positively marketing related to offsetting channels investments. Replaceability of Asset specificity is partner. negatively related to replaceability. Heide & John Joint action in Asset Specificity; Joint action Joint action increases (1990) BZB buyer- Environmental with OEM specific supplier uncertainty; investments and relationships Behavioral suppliers' specific uncertainty investments. Expectations of Technological continuity uncertainty decreases continuity expectation. Behavioral uncertainty Supplier increases the level of verification efforts verification efforts. Heide & John Impact of norms Asset specificity; Buyer's control Buyer asset specificity (1992) on BZB buyer- Interaction of asset over supplier is negatively related to seller specificity and decisions buyer control. relationships relational norms 20 Asset specificity x relational norms is positively related to buyer control. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Houston & Buyer-supplier Asset specificity; Joint venture Asset specificity is Johnson (2000) contracts versus Behavioral versus contract positively related to joint ventures uncertainty joint venture formation. Behavioral uncertainty is positively related to joint venture formation. Ingham & Wholly-owned Asset specificity Degree of wholly- Asset specificity is Thompson versus owned activity positively related to (1994) collaborative whole ownership. ventures Jap (1999) Collaboration in Environmental Profit performance; Environmental factors BZB buyer- factors; Dyadic Realized are positively related supplier goal congruence; competitive to asset specificity. relationships Complementary advantages capabilities; Belief Complementary in trustworthiness: capabilities are Asset specificity positively related to (as moderator) asset specificity. Asset specificity is positively related to profit performance and realized competitive advantage. Jap & Ganesan Safeguarding Asset specificity; Retailers' Retailers' transaction (2000) investments Interaction of perception of specific investments through the retailers' asset suppliers' are negatively related relationship specificity and commitment (as to commitment. Iifecycle in BZB suppliers' asset mediator) buyer-seller specificity; Suppliers' transaction relationships Interaction of specific investments retailers' asset specificity and relational norms; Interaction of retailers' asset specificity and explicit contracts 2] are positively related to commitment. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables John & Weitz Salary versus Environmental Percentage paid in Behavioral (1989) incentive uncertainty; salary uncertainty, compensation for Behavioral salesperson the salesforce of uncertainty; replaceability and the industrial firms Salesperson interaction with replaceability; environmental Interaction of uncertainty are salesperson positively related to replaceability and the percentage of environmental salary compensation. uncertainty Joshi & Stump Asset specificity Asset specificity; Joint action Asset specificity is (1999a) in BZB Interaction of positively related to purchasing behavioral joint action. relationships uncertainty and asset specificity The positive relationship between asset specificity and joint action is increased with enhanced levels of behavioral uncertainty. Joshi & Stump Inter— Asset specificity; Ex post Asset specificity is (1999b) organizational Technological opportunism (and positively related to governance uncertainty mediators of dependence. manufacturer dependency and Asset specificity is manufacturer long- negatively related to term orientation) long-term orientation. Technological uncertainty is negatively related to long-term orientation. Dependence and long- term orientation are negatively related to opportunism. Joskow (1987) Relationship Asset Specificity Duration of Asset specificity is specific contract positively related to investments in coal markets 22 the length of the contract. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Kim (1999) Joint action in Asset specificity Dependence; Distributor asset BZB buyer- Service specificity is positively supplier differentiation; related to joint action, relationships Joint action distributor dependence and service differentiation. Kim & Hwang Multinationals' Environmental Entry mode No support for TCE (1992) entry mode uncertainty; Asset propositions. choices specificity Klaas, The role of Interaction of asset Benefits from Asset specificity and McClendon & transaction costs Specificity and HR outsourcing uncertainty positively Gainey (1999) on the impact of outsourcing: moderated the HR outsourcing Interaction of relationship between uncertainty and HR HR outsourcing and outsourcing perceived benefits. Klein (1989) The levels of Asset specificity; Vertical control of When there is high control that Environmental export channel asset specificity, high companies uncertainty; uncertainty and high maintain over the Transaction transaction frequency export channel frequency then exporters exert Klein, Frazier & Roth (1990) Klein & Roth (1990) Channel integration in international markets Foreign market entry type Asset specificity; Environmental uncertainty Asset specificity 23 Channel integration in international markets Foreign market entry type greater control over the export channel. Asset specificity is positively related to channel integration. Findings provide some support for the positive effect of environmental uncertainty on channel integration. Experience and psychic distance are moderated by asset specificity in their relationship with foreign market entry type. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Krafft (1999) Sales force Environmental Sales force control Uncertainty has a control systems uncertainty; positive relationship Behavioral with behavioral uncertainty; Asset control. specificity; Interaction of asset Behavioral uncertainty specificity and has a positive uncertainty relationship with behavioral control. Leiblein & The vertical Asset specificity; Vertical integration The interaction of asset Miller (2003) boundaries of the Uncertainty; specificity and firm Interaction of asset uncertainty is specificity and positively related to uncertainty vertical integration. Uncertainty is negatively related to vertical integration. Leiblein, Reur The influence of Asset specificity; Intemalization of Environmental & Dalsace governance on Environmental governance uncertainty is (2002) performance uncertainty; positively associated Interaction of asset with internalization. specificity and environmental Asset specificity is uncertainty positively related to internalization. The interaction of asset specificity and environmental uncertainty is negatively related to internalization. Levy (1985) Vertical Asset specificity; Degree of vertical Asset specificity and integration in Environmental integration environmental B28 buyer- uncertainty uncertainty positively supplier related to the degree of relationships vertical integration. Lieberman Upstream and Asset specificity Level of vertical Asset specificity is (1991) downstream integration positively related to integration in vertical integration. B2B markets 24 Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Lyons (1995) Test of TCE in Asset specificity Degree of vertical Asset specificity only engineering integration has influence on the firms level of vertical integration in the presence of economies of scale. Ma jumdar & Downstream Environmental Degree of vertical Environmental Ramaswamy integration uncertainty; integration uncertainty, behavioral (1994) Behavioral uncertainty, asset uncertainty; Asset specificity, and specificity; transaction frequency Transaction are positively related frequency to the degree of vertical integration. Masten, Costs of Asset specificity; Vertical Asset specificity and Meehan & organization Environmental integration; Costs environmental Snyder (1991) uncertainty of internal uncertainty are organization positively related to internal organization due to the reduction in cost of internal organization. Masten (1984) Organization of Asset specificity; Vertical integration Asset specificity and production in the Environmental environmental aerospace uncertainty uncertainty are industry positively related to 25 internal organization. The interaction of asset specificity and environmental uncertainty has a multiplicative effect on internal organization. Table 1 (continued) Author Context Independent Dependent Findings (yew Variables Variables McNaughton Use of multiple Asset specificity; Multiple export Physical asset (2002) export channels Environmental channel use specificity is by small firms uncertainty negatively related to multiple channel use. Environmental volatility (part of environmental uncertainty) is negatively related to multiple channel use. Environmental diversity (part of environmental uncertainty) is positively related to multiple channel use. Monteverde & Switching costs Asset specificity Intemalization of Asset specificity is Teece (1982) and vertical procurement positively related to integration in the the internalization of automotive procurement. industry Murray, Implications of a Asset specificity; Market Increased asset Kotabe & global sourcing Transaction performance specificity provides Wildt (1995) strategy frequency better financial performance under internal sourcing. Nickerson, Linking Porter Asset specificity Vertical integration The existence of Hamilton & and Williamson's specific assets Wada (2001) work. increases the likelihood of vertical integration. Noordewier, B2B buyer- Environmental Acquisition cost High relational John & Nevin vendor uncertainty governance reduces (1990) relationships the acquisition cost 26 under environmental uncertainty. Table 1 (continued) Author Context Independent Dependent Findings (yeg) Variables Variables Parkhe (1993) Examination of Perception of Performance; The perception of interfirm opportunism; Contractual opportunism is cooperation safeguards negatively related to performance and positively related to contractual safeguards. History of Perception of Cooperative history is cooperation; opportunism negatively related to the perception of opportunism. Asset specificity Perception of Asset specificity is opportunism; positively related to Length of performance and relationship; length of relationship. Performance Asset specificity is negatively related to the perception of opportunism. Filling, Crosby Empirical Asset specificity: Ex ante and ex post Asset specificity is & Jackson examination of Environmental transaction costs positively related to ex (1994) the transaction uncertainty; ante and ex post cost economics Transaction transaction costs. framework. frequency Environmental uncertainty is positively related to ex ante transaction costs. Poppo & Testing Asset specificity; Market versus Asset specificity is Zenger (1998) alternative Behavioral internal negatively related to theories of the uncertainty; organization satisfaction with firm Technological outsourcing. uncertainty 27 Asset specificity is negatively related to market performance. Behavioral uncertainty is negatively related to satisfaction with internal activity. Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Reuer & Arino Renegotiation of Asset specificity; Contractual Governance misfit and (2002) contracts in Govemance misfit renegotiation asset specificity are strategic positively related to alliances contractual renegotiations. Robertson & Use of internal Asset specificity; Internal Asset specificity is Gatignon R&D versus Environmental development negatively related (1998) alliances in the uncertainty; versus alliance while technological development of Behavioral uncertainty and technology uncertainty behavioral uncertainty are positively related to the use of alliances. Rokkan, Heide Impact of Asset specificity Ex post Specific investments & Wathne specific opportunism promote opportunism (2003) investments on where there are weak opportunism in solidarity norms. B2B buyer-seller relationships Strong solidarity norms decrease opportunism. Likely future interactions reduces possibility of opportunism for buyers but not suppliers. Skarmeas, Performance of Asset specificity; Commitment Importer asset Katsikeas & cross-cultural Opportunism; specificity is positively Schlegelmilch buyer-seller Environmental related to importer (2002) relationships uncertainty commitment. Overseas from the supplier opportunism importers’ is negatively related to perspective. importer commitment. Environmental Environmental Opportunism uncertainty is uncertainty; positively related to Cultural sensitivity 28 overseas supplier opportunism while exporter cultural sensitivity is negatively related to exporter opportunism. Table 1 (continued) Author Context Independent Dependent Findings (yeg) Variables Variables Steensma, Influence of Environmental Use of technology Technological Marino, national culture uncertainty alliances uncertainty is Weaver, & on the formation Interaction of positively related to Dickson (2000) of technology culture variables the use of technology alliances and environmental alliances. uncertainty. The interaction of uncertainty avoidance and technological uncertainty is positively related to the use of technology alliances. The interaction of masculinity and technological uncertainty is negatively related to the use of technology alliances. Use of equity ties The interaction of in alliances individualism and technological uncertainty is negatively related to the use of equity ties in alliance formation. Stump & Manufacturers' Asset specificity Buyer qualification Buyers protect specific Heide (1996) organization of of supplier ability; investments through buyer-supplier Buyer qualification the careful selection of relationships of supplier suppliers, and supplier motivation; specific investments. Specific investments by suppliers; Monitoring 29 Table 1 (continued) Author Context Independent Dependent Findings (year) Variables Variables Subramani & Safeguarding of Asset specificity Joint decision Business process Venkatraman investments in (site, physical, making specificity is positively (2003) asymmetric business process, related to joint inter- domain decision making. organizational knowledge). relationships Domain knowledge specificity is positively related to joint decision making. Physical asset specificity is positively related to joint decision making Quasi-integration Domain knowledge specificity is positively related to quasi- integration. Physical asset specificity is positively related to quasi- integration. Walker & Relationships Environmental Component bought Volume uncertainty Weber (1984) between BZB Uncertainty or made affects make or buy buyers and decisions. suppliers Walker & Relationships Environmental Component bought The interaction of Weber (1987) between B2B Uncertainty or made market competition buyers and and volume suppliers uncertainty affects make or buy decisions. Weiss & Use of an Asset specificity; Manufacturers' Specific investments Anderson independent Behavioral dissatisfaction with made by sales reps (I992) salesforce or uncertainty representatives. reduce manufacturer direct (integrated) salesforce 30 Intention to integrate salesforce dissatisfaction. Behavioral uncertainty is positively related to the intention to integrate the salesforce. Table 1 (continued) Author Context Independent Dependent Findings Jyear) Variables Variables Weiss & Holding channel Asset specificity; Relationship Manufacturer specific Kurland (1997) relationships Interaction of asset termination assets and customer together specificity and specific assets arc length of negatively related to relationship relationship termination. The likelihood of relationship termination decreases with the length of the relationship, holding customer specific and manufacturer specific assets constant. Widener & Outsourcing of Asset Specificity; Intemalization Asset specificity is Selto (1999) internal auditing Environmental negatively related to activities uncertainty; outsourcing. Interaction of asset specificity and Transaction environmental frequency is uncertainty; negatively related to Behavioral outsourcing. uncertainty; Interaction of asset The interaction of specificity and asset specificity and behavioral transaction frequency uncertainty; is positively related to Transaction outsourcing. frequency; Interaction of transaction frequency and asset specificity Zaheer & Electronic Asset specificity: Degree of Asset specificity is Venkatraman integration in the Reciprocal electronic positively related to (1994) insurance investments integration electronic integration. industry Zaheer & Relational Asset specificity: Quasi-integration Asset specificity is Venkatraman governance in Behavioral positively related to (1995) inter- uncertainty; quasi-integration. organizational Reciprocal relationships investments 3I Safeguarding Problem The safeguarding problem is when a firm invests in specific assets and is concerned that its partner firm may opportunistically exploit the existence of these assets (Rindfleisch and Heide, 1997). In TCE arguments, it is thought that the existence of specific assets increases safeguarding costs and TCE proposes that the way to minimize these safeguarding costs is through vertical integration (Williamson, 1985). That is to say, vertical integration is proposed as a safeguard for these specific assets. Williamson (1 975; 1985) argues that asset specificity is the key independent variable driving the choice of governance structure. Table l and reviews of the transaction cost literature (e.g., David and Han, 2004; Geyskens, Steenkamp, and Kumar, 2006) Show that the proposition that asset Specificity leads to greater integration is generally supported in the many different contexts that it has been tested in. That is to say, asset specificity has been found to be positively related to greater integration. Specifically, studies in upstream and downstream integration support the TCE proposition that vertical integration performs the task of safeguarding specific assets. For example, studies indicate that when production components require specific investments then there is a greater likelihood of them being produced in-house than externally (Masten, 1984; Monteverde and Teece, 1982). Majumdar and Ramaswamy (1994) examined 1,392 firms from an assortment of industries and found that both physical asset specificity and intangible asset specificity were positively related to vertical integration. Likewise, Levy (1985) found a positive relationship between research intensity (used as a proxy for asset specificity) and vertical integration, in a sample of 69 firms from 37 different industries over four years. 32 The foreign market entry literature is another context supporting the TCE proposition. Here, studies with asset specificity as an independent variable are generally associated with entry modes that are more integrated. For example, Anderson and Coughlan (1987) examined 94 market entry ventures by 36 U.S.-based firms in the semiconductor industry and found that higher levels of asset specificity lead to a greater use of an integrated channel of distribution as opposed to an independent channel. Other studies in the foreign market entry literature (e. g., Brouthers, Brouthers, and Werner, 2003; Lu, 2002) also support the proposition that asset specificity leads to use of a wholly-owned entry mode and not an independent one. Additionally, studies in the sales marketing literature suggest support for the asset Specificity proposition. For example, Anderson (1985) used data from the electronic components industry to examine the decision of 13 manufacturing firms in the choice of the use of an integrated or independent salesforce. She found that asset specificity, in the form of complex brands that experienced salespeople need a lot of time to learn, and investment in relationships within and specific to the firm, are positively related to an integrated salesforce. Also, Anderson and Schmittlein (I 984) provide further support for the proposition that greater asset specificity increases the likelihood of an integrated salesforce with their study of 145 sales managers from 16 manufacturing firms in the electronic components industry. In addition to vertical integration as a safeguard against opportunism in the presence of specific assets, recent TCE theoretical developments suggest the use of various hybrid mechanisms. These hybrid mechanisms can be separated into two types: unilateral and bilateral (Heide, 1994; Rindfleisch and Heide, I997). The unilateral hybrid 33 mechanism involves use of contractual authority, while the bilateral hybrid mechanism involves developing closer ties between partners (Rindfleisch and Heide, 1997). An example of a unilateral hybrid mechanism is given by J oskow (1987). In his study of 277 coal contracts, he finds that ‘site specificity’, i.e., when “[T]he buyer and supplier are in a “cheek-by-jowl” relationship with one another” (p. 170), increases the likelihood of longer-term contracts. An example of a bilateral hybrid mechanism is recounted by Kim (1999) in his study of 276 distributor firms from three US industries: industrial machinery and equipment, industrial supplies, and hardware. He finds that specialized investment by the distributor (i.e., asset Specificity) increases the likelihood of interfirm joint action between the distributor and supplier. Further support for this positive relationship between asset specificity and joint action can be seen in studies by Subramani and Venkatraman (2003), Joshi and Stump (1999a) and Heide and John (1990) In conclusion, it is possible to state that the proposition that greater asset specificity in the presence of possible opportunistic behavior leads to vertical integration is generally supported by the extant literature in TCE. This literature shows that many firms make use of vertical integration as a mode of governance when they have invested in assets specific to a transaction to safeguard their assets from opportunistic behaviors. Although the use of vertical integration as a safeguard is broadly supported, studies also Show that firms may also make use of various unilateral and bilateral safeguards such as long-term contracts, joint action, and quasi-integration. 34 Adaptation Problem The adaptation problem is when a firm cannot modify its existing contractual agreements to react to changes in the external environment. This inability to modify existing agreements results from the bounded rationality of the managers in the firm (Rindfleisch and Heide, 1997). TCE arguments suggest that in conditions of high environmental uncertainty, there is an increase in transaction costs and as such firms should use vertical integration to minimize these transaction costs (Rindfleisch and Heide, 1997; Williamson, 1975, 1985). The adaptation problem only occurs when there is a non-trivial amount of asset specificity (David and Han, 2004). As Geyskens, Steenkamp and Kumar (2006) note, environmental uncertainty coupled with asset specificity necessitates vertical integration, while environmental uncertainty without transaction specific assets is best served by the market. Reviews of TCE (e. g., David and Han, 2004; Rindfleisch and Heide, 1997) and Table 1 demonstrate a substantial numbers of studies examining the adaptation problem. There is less support for the hypothesized relationship between environmental uncertainty and vertical integration than between asset specificity and vertical integration, and in fact some studies suggest that environmental uncertainty decreases the propensity for firms to vertically integrate. Of the studies that examine the relationship between environmental uncertainty and governance, only a few support the TCE hypothesis. For example, Levy (1985) finds that an increase in unanticipated events increases the likelihood of manufacturing firms engaging in vertical integration. Likewise, Masten (1984), in a study conducted in the aerospace industry, found that higher levels of environmental uncertainty increase the likelihood of internalization of the production of necessary components. Additionally, 35 Majumdar and Ramaswamy (1994) found a positive relationship between environmental uncertainty and downstream integration. There are also many studies that do not support the TCE hypothesized relationship between environmental uncertainty and vertical integration. For example, Leiblein, Reuer, and Dalsace (2002), in a study conducted in the semiconductor industry find that increased levels of environmental uncertainty increase the likelihood of firms outsourcing rather than internalizing production. Additionally, Brouthers, Brouthers, and Werner (2003) find a similar result in their study of firms’ entry modes, that is to say, they find that higher levels of environmental uncertainty decrease the likelihood of wholly-owned modes of entry. Also, Anderson and Schmittlein (1984) find there to be no significant relationship between environmental uncertainty and vertical integration. This inconsistency in results is likely as a result of one of the two following reasons. First, TCE specifies that the adaptation problem only exists when both environmental uncertainty and asset specificity are present. As such, studies that examine the interaction effect of asset specificity and environmental uncertainty may provide greater support for the theoretical predictions. Second, environmental uncertainty has been hypothesized to be a multidimensional construct (Walker and Weber, 1984) with different dimensions having different effects. Several studies approach the adaptation problem by examining the interaction of environmental uncertainty and asset specificity. For example, Coles and Hesterly(1998) in their study of make or buy decisions in hospitals found that higher levels of environmental uncertainty when there was asset specificity, increases the likelihood of vertical integration. Likewise, Anderson (1985) in her study of manufacturers’ use of 36 direct salesforce or manufacturers representatives, found that environmental uncertainty in the presence of asset specificity was positively related to the likelihood of use of the integrated (i.e., direct) salesforce. Finally, Leiblein, Reuer and Dalsace (2002) find that environmental uncertainty when asset Specificity is present is negatively related to the decision to outsource production. Rindfleisch and Heide (I997) credit Walker and Weber (1984) as being the first TCE scholars to theorize different dimensions to environmental uncertainty, i.e., volume uncertainty and technological uncertainty. In a study of the decisions made in the component division of a US. automobile manufacturer, Walker and Weber (1 984) find that high volume uncertainty increases the likelihood of the firm internalizing production, while technological uncertainty had no significant effect on the make or buy decision. Balakrishnan and Wemerfelt (1986) find that technological uncertainty is negatively related to the propensity of manufacturers to vertically integrate. Similarly, Folta (1998) in his study of the biotechnology industry, finds that the existence of high levels of technological uncertainty increases the likelihood of firms using equity collaborations rather than acquisitions. However, Barney, Edwards and Ringleb (1992) in their study of manufacturers find that technological uncertainty is positively associated with vertical integration while volume uncertainty is negatively associated with vertical integration. There is mixed support in the extant TCE literature for the hypothesized positive relationship between environmental uncertainty and vertical integration. Some studies support the hypothesis, particularly when the scholars examine the interaction between asset specificity and environmental uncertainty; however, many studies Show no relationship or a negative relationship. In addition, even when broken down into its two 37 theorized dimensions conflicting results remain. An explanation for all of these inconsistencies may be that the hypothesized TCE relationship between environmental uncertainty in all its dimensions and vertical integration may be bound by industry. The dynamics of certain industries (e.g., biotechnology) may require firms to be more flexible thus greatly reducing the likelihood of vertical integration. On the other hand, large manufacturing firms may require more stability in relationships and thus may be more likely to vertically integrate in response to technological uncertainty. Either way, it appears possible that there may be industry-Specific dynamics that play a powerful role in the decision of firms to integrate or not. Performance Evaluation Problem The performance evaluation problem is when a firm has problems assessing whether or not its partner firm has complied with the contract. This inability to assess partner compliance to the contract results from the bounded rationality of the managers in the firm (Rindfleisch and Heide, 1997). TCE arguments suggest that in conditions of high behavioral uncertainty, there is an increase in transaction costs and as such firms should use vertical integration to minimize these transaction costs (Rindfleisch and Heide, 1997; Williamson, 1975, 1985). Reviews of TCE (e. g., David and Han, 2004; Geyskens et al., 2006; Rindfleisch and Heide, 1997) and Table 1 demonstrate fewer studies examining the performance evaluation problem, yet most studies that do examine this problem support the TCE predictions. For example, Majumdar and Ramaswamy (1994) in their study utilizing the PIMS database find that higher levels of behavioral uncertainty increase the likelihood of downstream integration. Likewise, studies in the use of direct salesforce or 38 manufacturers’ representatives (Anderson, 1985; Anderson and Schmittlein, 1984) demonstrate that higher levels of behavioral uncertainty increase the likelihood of the use of a direct salesforce. Furthermore, Houston and Johnson (2000) and Gatignon and Anderson (1988) also support the hypothesized relationship between behavioral uncertainty and greater integration. To sum up, the extant TCE literature generally supports the positive hypothesized relationship between behavioral uncertainty and vertical integration. Transaction Frequency TCE hypothesizes a positive relationship between transaction frequency and vertical integration, as frequently occurring transactions would bring substantial transaction costs associated with monitoring Should they occur in the market (Williamson, 1985). However, reviews of the extant literature (e.g., David and Han, 2004; Rindfleisch and Heide, 1997) and Table 1 demonstrate that few studies to date have tested this relationship. Of the studies that are the exception to this, they generally support the predictions of the theory. For example, Majumdar and Ramaswamy (1994) studied 1,392 firms from multiple industries and discovered that transaction frequency was positively related to downstream integration. Likewise, Widener and Selto (1999) found that transaction frequency was negatively related to the likelihood of firms outsourcing internal auditing activities. Finally, Buvik and John (2000) were able to Show that the transaction frequency of purchases by original equipment manufacturers was positively related to ex post transaction costs. Theoretically these transaction costs would best be attenuated by vertical integration. Overall, few studies examine the relationship 39 between transaction frequency and vertical integration, however, those that do generally support the predictions of TCE theory. Having analyzed the extant TCE literature, the dissertation now moves on to examine the extant literature Specifically measuring the antecedents and consequences of opportunism in interorganizational relationships. The possibility of partners to an exchange behaving opportunistically during an ongoing relationship is a key assumption ofTCE (Williamson, 1975) and the focus of the rest of this dissertation. Opportunism in Interorganizational Relationships Opportunism is a key construct in the study of interorganizational relationships, yet issues remain regarding its conceptualization, measurement and empirical testing (Wathne and Heide, 2000). Theoretically, opportunism has been defined as self-seeking interest with guile (Williamson, 1975) and is a focal construct in exchange theory (J ap and Anderson, 2003), particularly TCE. It is key to acknowledge that proponents of TCE do not state that partners will behave opportunistically, but that they may behave opportunistically. Wathne and Heide (2000) list many examples from the extant marketing literature to demonstrate the existence of opportunistic behavior by partners including “falsification of expense reports (Phillips, 1982), breach of distribution contracts (Dutta, Bergen, and John, 1994), quality shirking (Hadfield, 1990) and violation of promotion agreements (Murry and Heide, 1998)” (p.36). Clearly, it is not unusual for firms to face the problem of opportunism. Theoretically, in TCE, opportunism is considered to be of two types, ex ante opportunism and ex post opportunism (Williamson, 1985). Ex ante opportunism is opportunism that occurs in the initiation stage of a relationship whereas ex post 40 opportunism occurs during the process of the relationship. In addition, the contemporary theoretical perspective in TCE is that there exists a dichotomy of opportunism based upon whether the opportunism occurs by commission or omission (Wathne and Heide, 2000). That is to say, there are two types of opportunism, active ex post opportunism (by commission) and passive ex post opportunism (by omission). Active ex post opportunism is when a firm engages in behaviors and is thus opportunistic, whereas passive opportunism is when a firm refrains from behaviors and is thus opportunistic (Wathne and Heide, 2000). For example, behaviors such as lying (Rokkan et al., 2003), breaching agreements (Gundlach et al., 1995), making false accusations (J ap and Anderson, 2003), using unexpected events to extract concessions (Rokkan et al., 2003), altering facts (Achrol and Gundlach, 1999; Anderson, 1988) and not being sincere (Achrol and Gundlach, 1999; Gundlach et al., 1995) constitute acts of active ex post Opportunism. Alternatively, behaviors such as a firm not doing as promised (Dahlstrom and Nygaard, 1999; John, 1984), hiding information (Dahlstrom and Nygaard, 1999), not accepting responsibility where appropriate (J ap and Anderson, 2003), not providing proper notification (J ap and Anderson, 2003), and not telling the whole truth (Anderson, 1988) constitute passive ex post opportunism. Reviews of the TCE literature (e.g., David and Han, 2004; Macher and Richman, 2005; Rindfleisch and Heide, 1997) note few studies that include opportunism as either a dependent or independent variable. Table 2 presents a list of studies, ordered by first author’s surname, that are the exception to this. 41 Table 2: Studies Employing Opportunism as an Independent or Dependent Variable Author Context Independent Dependent Findings (year) Variables Variable Achrol & Different legal Commitment by Opportunism An increase in the Gundlach and social one party; Granting comparative (1999) safeguards of decision control commitment of one against to one party; party is positively opportunism. Interaction of related to contractual opportunism by the safeguards and other. increase in commitment; Relational norms are Relational norms; negatively related to Interaction of opportunism. relational norms and increase in The interaction of commitment; relational norms and Interaction of increase in one decision-control party’s commitment and relational is negatively related norms; Interaction to opportunism. of contractual norms, relational norms and increase in commitment Anderson Opportunism in Asset specificity; Opportunism Asset specificity (1988) integrated and Environmental positively related to independent sales uncertainty; opportunism. forces Behavioral uncertainty Behavioral Type of sales force: Opportunism Company and sales person goal congruence; Monitoring of salesperson 42 uncertainty positively related to opportunism. Integrated sales forces exhibit less opportunism than manufacturers’ reps. Salesperson and company goal congruence decreases opportunism. Table 2 (continued) Author Context Independent Dependent Findings (year) Variables Variable Bergen, Heide The tolerance of Performance Tolerance of A free-riding potential & Dutta (1998) gray market ambiguity; Dual opportunism with respect to activity distribution; distributor services is Exclusive dealing; negatively related to F ree-riding tolerance of potential; Product opportunism. maturity Higher performance ambiguity is positively related to tolerance of opportunism. Commitments by distributors are positively related to tolerance of opportunism. Product matruity is positively associated with tolerance of opportunism. Brown, Dev & Efficacy of Vertical Opportunism The more the hotel Lee (2000) alternative integration; Asset invests in specific governance specificity; assets the more mechanisms in Perception of opportunistic it will be. managing relational marketing exchange; Vertical The perception of channel integration x asset relational exchange opportunism specificity; Vertical mitigates the hotel’s integration x opportunism. perception of relational exchange; Asset specificity x perception of relational exchange; Vertical integration x asset specificity x perception of relational exchange 43 Table 2 (continued) Author Context Independent Dependent Findings (year) Variables Variables Dutta, Bergen The issue of N/A N/A Firms tolerate a certain & John (1994) governing amount of exclusive opportunism and territories when managers should dealers can consider importance of bootleg services, difficulty of behaving opportunistically, and reseller’s perception of manufacturer’s commitment when deciding how much opportunism to tolerate. Jap & Safeguarding Interaction of Exchange At higher levels of ex Anderson interorganization bilateral outcomes post opportunism, goal (2003) al performance idiosyncratic congruence is more and continuity investments and ex positively associated under ex post post opportunism; with exchange opportunism Interaction of goal outcomes. congruence and ex post opportunism; At lower levels of ex Interaction of post opportunism (not interpersonal trust higher levels) and ex post interpersonal trust is opportunism more positively associated with exchange outcomes. John (1984) Antecedents of Bureaucratic Opportunism Bureaucratic opportunism in structuring; structuring (i.e. marketing Perceptions of formalization, channels coercive power centralization and attribution; controls) is positively Attributions of related to opportunism. non-contingent power Coercive power attributions are positively related to opportunism. 44 Table 2 (continued) Author Context Independent Dependent Findings (year) Variables Variables Joshi & Arnold An experimental Interaction of Opportunism Buyer dependence on a (1997) examination of dependence and supplier is positively the moderating relational norms related to buyer role of relational opportunism when norms in the there are low relational relationship norms. between buyer dependence and Buyer dependence on a buyer supplier is inversely opportunism in related to buyer buyer-supplier opportunism when relationships. there are high relational norms. Lee (1998) Strategic Decision-making Opportunism Exporters’ decision alliances uncertainty; making uncertainty is between Cultural distance; positively related to importers and Economic their opportunism. exporters ethnocentrism Cultural distance is positively related to opportunism. Exporters’ economic ethnocentrism is positively related to their Opportunism. Parkhe (1993) Examination of Perception of Performance; Perception of interfirm opportunism; Contractual opportunism is cooperation safeguards negatively related to performance and positively related to contractual safeguards. History of Perception of Cooperative history is cooperation; opportunism negatively related to Asset specificity 45 Perception of opportunism; Length of relationship; Performance perception of opportunism. Asset specificity is positively related to performance and length of relationship and negatively related to perception of opportunism. Table 2 (continued) Author Context Independent Dependent Findings (year) Variables Variables Provan & An examination Dependence; Opportunism Highly dependent Skinner (1989) of opportunism Control over dealers are less likely in relationships decisions to engage in between farm opportunistic behavior and power with their suppliers equipment than less dependent dealers and their dealers. suppliers Supplier control over dealer decisions is positively related to dealer opportunism. Rokkan, Heide Impact of Asset specificity Ex post Specific investments & Wathne specific opportunism promote opportunism (2003) investments on where there are weak opportunism in solidarity norms. B2B buyer-seller However, strong relationships solidarity norms decreased opportunism. Possibility of future interactions reduces possibility of opportunism for buyers but not for suppliers. Sako & Helper Determinants of Vertical Opportunism Interaction of asset (1998) trust in buyer— integration; Length specificity and supplier relationships in the automotive industry in Japan and the US of written contract; Asset specificity; Interaction of asset Specificity and environmental uncertainty 46 environmental uncertainty is positively related to buyer opportunism. Environmental uncertainty is positively related to buyer opportunism. Table 2 (continued) Author Context Independent Dependent Findings (year) Variables Variables Schilling & Determination of Uniqueness of Perceived threat of Barriers to imitation of Steensma the boundaries of technology to be opportunism the technology is (2002) the firm when sourced; Barriers to positively related to sourcing imitation of the perceived threat of technological technology to be opportunism. know-how sourced; Uncertainty associated with technology to be sourced. The perceived threat of opportunism increases Perceived threat of Acquisition versus the likelihood of an opportunism licensing acquisition as opposed agreement to a licensing agreement. Skarmeas, Performance of Asset specificity; Commitment Importer asset Katsikeas & cross-cultural Opportunism; specificity is positively Schlegelmilch buyer-seller Environmental ' related to importer (2002) relationships uncertainty commitment. from the importers’ Overseas supplier perspective. opportunism is negatively related to importer commitment. Environmental uncertainty is Environmental Opportunism positively related to uncertainty; overseas supplier Cultural sensitivity 47 opportunism. Exporter cultural sensitivity is negatively related to exporter opportunism. Table 2 and reviews of TCE (David and Han, 2004; Macher and Richman, 2005; Rindfleisch and Heide, 1997) note very few studies that directly measure opportunism or its antecedents and consequences. As Macher and Richman (2005) note, this is surprising as there is no theoretical reason, according to TCE arguments, for firms to choose hierarchy over market absent opportunism, or at least the potential for opportunism (Williamson, 1985). Of the 15 studies in Table 2, 10 studies employ opportunism as the dependent variable, one study examines the interaction of opportunism with other independent variables, and three have multiple analyses incorporating opportunism as an independent variable in some analyses and the dependent variable in other analyses. As the majority of the studies employ opportunism as the dependent variable, I will first examine those studies with opportunism as the dependent variable. One of the first studies to measure opportunism as an endogenous rather than exogenous variable was John (1984). In his study of 147 retail dealers of a major oil company he found that bureaucratic structuring (i.e., formalization, centralization and control) and coercive power attributions were positively related to an increase in ex post opportunism by channel partners. Provan and Skinner (1989) in their study of 226 farm and power equipment dealers, also found that supplier control over dealer decisions led to increased levels of dealer opportunism. In a study of 169 sales managers, Anderson (1988) found that the greater the level of transaction specific investments possessed by salespeople and the difficulty of measuring the performance of these salespeople increased the likelihood of the salespeople behaving opportunistically. The export marketing literature has also been the context for some studies with opportunism as the dependent variable. For example, in a study of 105 Australian firms 48 exporting to Korea, Lee (1998) found three factors that impacted upon the exporters’ intention to behave opportunistically. Specifically, Kim found that an exporter’s economic ethnocentricism, decision-making uncertainty, and the cultural distance between the exporter and importer were all positively related with the exporter’s opportunistic behavior. Skarmeas, Katsikeas, and Schlegelmilch (2002) in their study of exporter-importer relationships found that variability in demand and supply (i.e., environmental uncertainty) was positively related to the exporter’s opportunism. In contrast they found that exporter cultural sensitivity was negatively related to exporter opportunism. Some studies have examined the role of relational norms in attenuating Opportunism. Rokkan, Heide and Wathne (2003) support Anderson’s (1988) finding of asset specificity leading to increased opportunism, but only when relational norms are weak. When relational norms are strong, they find that asset specificity is negatively related to opportunistic behavior. Finally, two of the studies in Table 2 use experimental methods to examine antecedents of opportunism. Joshi and Arnold (1997), similar to Rokkan et al. (2003), find that the level of relational norms moderates the influence of antecedents on opportunism. More specifically, J oshi and Arnold (1997) in an experiment with 148 purchasing managers find that buyer dependence on a supplier is positively related to high levels of buyer opportunism in the presence of low relational norms. However, if there are high relational norms between buyer and supplier, then buyer dependence on the supplier was inversely related to buyer opportunism. And in an experiment with 101 undergraduate students, Achrol and Gundlach (1999) found that stronger relational norms led to lower levels of opportunism and also that stronger 49 relational norms negatively moderated the relationship between a comparative increase in commitment by one party and opportunism by the other. Of equal importance from the perspective of the theoretical underpinnings of TCE, are studies examining the consequences of ex post opportunism. The results of studies in this regard, present conflicting results leaving it unclear whether firms should attempt to eliminate opportunism completely or tolerate some opportunism (Wathne and Heide, 2000). For example, Parkhe (1993) in his study of interfirm cooperation in 111 firms, finds that opportunism has a detrimental effect on performance. This result is in line with traditional TCE arguments (Williamson, 1975, 1985, 1996) that argue without opportunism there is no benefit of vertical integration over the market. However, Dutta, Bergen and John (1994) recommend that firms develop a tolerance limit for opportunistic behavior treating opportunism as part of a cost-benefit calculation thus invoking a trade- off between managing opportunism and reducing governance costs (Wathne and Heide, 2000). As indicated by TCE scholars (e. g., Macher and Richman, 2005; Wathne and Heide, 2000), it is necessary for more studies to be conducted examining the construct of ex post opportunism. Scholars are unsure as to the conceptualization of the opportunism construct and the consequences of tolerating a certain amount of opportunism as opposed to attempting to eliminate it completely. It may be that inconsistencies in results and confusion surrounding ex post opportunism are as a result of the different forms of ex post opportunism, i.e. active ex post opportunism and passive ex post opportunism (Wathne and Heide, 2000). These different forms may explain differences in the toleration level of ex post opportunistic behavior. In addition, it is possible that the 50 question of how much ex post opportunism to tolerate may also be a function of the value that exists in a relationship, with parties tolerating greater amounts of ex post opportunism when there is more value in the relationship. Therefore, in Chapter 3, a model based on the TCE paradigm is developed to address these concerns. 5] CHAPTER 3 Theoretical Model and Hypotheses This study takes the perspective of a buyer firm in an interorganizational buyer- supplier relationship where active or passive ex post opportunistic behavior occurs in the relationship from the supplier. This study examines the impact of both the accumulation of active and passive ex post opportunistic behavior on the response of the buyer under different boundary conditions of value (i.e., economic value and strategic value) in the interorganizational buyer-supplier relationship. Ex Post Opportunism Opportunism is defined as self seeking interest with guile (Williamson, 1975). As indicated previously an underlying assumption of TCE is that parties to a transaction may behave opportunistically. Without potential opportunism, rules could be used to govern behavior and there would be no need for alternative governance mechanisms (Williamson, 1985). This study works toward greater specificity to what is known in TCE by recognizing two forms of ex post opportunism: active ex post opportunism and passive ex post opportunism (Wathne and Heide, 2000). Active and passive ex post opportunism are ex post opportunism by commission and omission, respectively (Wathne and Heide, 2000). Given differences in actions, the legal system has treated acts of commission and omission differently.2 The law (and decision makers) place greater responsibility upon actions (commission) as it is more appropriate to make inferences to intentions based upon commission rather than based upon omission (Baron, 1992; Shell, 1991). In addition, acts of commission necessitate 2 . . . This dates back to the United States Supreme Court case of Lardlaw er al. v. Organ ( I 815) where Supreme Court Chief Justice Marshall ruled that a party is not obliged to disclose information that is to his own benefit and this non-disclosure does not amount to fraudulent misrepresentation. 52 greater effort on the part of the actor engaging in the behavior than acts of omissions, thus indicating stronger intentions; omissions may be the result of ignorance whereas commissions are not; and commissions are generally motivated by greater malice than omissions (Spranca, Minsk, and Baron, 1991). Both active ex post opportunism (commission) and passive ex post opportunism (omission) create tension in the interorganizational buyer-supplier relationship as they impede the smooth functioning of the relationship (Planalp and Honeycutt, 1985), that is, they increase the cost to the relationship. The greater effort and malice involved in active ex post opportunism creates a greater tension in the system than that generated by passive ex post opportunism. Therefore, acts of active ex post opportunism are more costly to the interorganizational buyer-supplier relationship than acts of passive ex post opportunism. Firms routinely engage in both active and passive ex post opportunistic behavior against partner organizations. For example, Wathne and Heide (2000) recount Muris and colleagues’ (1992) example of both active and passive ex post opportunism in the “Cola Wars” of the 19803 between Pepsi and Coca-Cola. During these “Wars” it was essential for both Pepsi and Coca-Cola to develop flexible strategies regarding new products, packaging etc. that would enable the firms to respond quickly to the fluctuations of the external environment. Many of the independent bottlers used by both Pepsi and Coca- Cola engaged in passive ex post opportunistic behavior by refusing to make the necessary changes requested to allow either of the cola companies to be flexible in their strategies. Although the norms of the relationships suggested that the bottlers be flexible and make the necessary changes, they refused to do so thus engaging in passive ex post Opportunistic behavior. Some of the bottlers engaged in active ex post opportunism by 53 extracting concessions from Coca-Cola and Pepsi in return for making the necessary changes. By doing this, the bottlers attempted to engage in forced renegotiation to benefit themselves at the expense of Coca-Cola and Pepsi (Wathne and Heide, 2000). These acts of active and passive ex post opportunism ultimately led to a move away from the use of independent bottlers by these two firms, i.e., a change in governance form. Responses to Active and Passive Ex Post Opportunism in Long- Term Interorganizational Buyer-Supplier Relationships Transaction cost economics provides for two main responses to the accumulation of ex post opportunistic behavior in interorganizational buyer-supplier relationships: exit from the relationship (via market exchange or vertical integration) or continuation of the hybrid form of governance (Williamson, 1985). First, one form of exit from the interorganizational buyer-supplier relationship is through vertical integration (Williamson, 1975, 1979, 1985, 1996). Vertical integration is commonly referred to as the hierarchy form of governance and is internal organization of the transaction. Under the hierarchy form of governance, disputes between parties are resolved internally through the use of fiat (Williamson, 1975). A second form of exit is for one of the partners to the interorganizational buyer-supplier relationship to revert to market exchange. This involves leaving the interorganizational buyer-supplier relationship and reverting to a large numbers condition where any opportunistic behaviors by a partner in the market will be resolved by the market as options exist for firms (Williamson, 1975, 1979, 1985, 1996). Under market governance the identity of the parties to the transaction is irrelevant and classical contract law governs the relationships with any disputes resolved by appealing to the law (David and Han, 2004; Williamson, 54 1975). The firm reverting to market exchange can be a prelude to developing a new long- tenn interorganizational buyer-supplier relationship. The two types of exit, market exchange and hierarchy, are polar modes and the continuation of the interorganizational buyer-supplier relationship is an intermediate, hybrid form of governance (Williamson, 1996). The continuation of a hybrid form of governance by the firm allows for the continuation of ownership autonomy thus allowing the firm to adapt to disturbances that can be dealt with without recourse to the partner. However, there exists a degree of bilateral dependency in these relationships that necessitates the existence of contractual safeguards and certain apparatus to support long- term contracts. Thus, when particularly important disturbances arise it can be costly for the firms to engage in arbitration to resolve the dispute. Compare this to hierarchy, where these disturbances would be resolved by flat in a less costly manner (Williamson, 1996). Hypothesis Development The contemporary View in the TCE literature with regard to ex post opportunism is that it should be treated as a policy variable, i.e., subject to cost-benefit analysis (Wathne and Heide, 2000). Cost-benefit analyses are used for investment decisions and are built upon the principle that for an investment decision to be made the benefit should exceed the cost (Dupuit, 1844). With regard to ex post opportunistic behavior in interorganizational buyer-supplier relationships, ex post opportunism is viewed as a transaction cost and as such the governance of such costs is analyzed against the benefit of remaining in the interorganizational buyer-seller relationship. The benefit of remaining in the interorganizational buyer-seller relationship is the value provided to the partner by this relationship. In TCE, this value is implied to have both a strategic component 55 (referred to as the strategic value) and an economic component (referred to as the economic value), with Williamson (1975, p.39) stating that “. . .preferences for atmosphere may induce individuals to forego material gains for nonpecuniary satisfactions. . .” The cost-benefit analysis allows for the determination of the tolerance level for ex post opportunistic behavior (Dutta et al., 1994), in that the party to a relationship will tolerate ex post opportunistic behavior as long as the benefit of the relationship, as depicted by the value of the relationship, outweighs the accumulated costs of the ex post opportunism. Cost of the Accumulation of A ctive and Passive Ex Post Opportunism As indicated previously, both active ex post opportunism (commission) and passive ex post opportunism (omission) create tension in the interorganizational buyer- supplier relationship as they impede the smooth functioning of the relationship (Planalp and Honeycutt, 1985), i.e., they increase the cost to the relationship. The greater malice involved in active ex post opportunism and thus the greater effort required to overcome this type of opportunism creates a greater transaction cost in the system than that generated by passive ex post opportunism. Thus, the accumulation of active ex post opportunistic behavior builds at a greater rate than the accumulation of passive ex post opportunism. This is similar to differences in base numbers (suggestive of the transaction cost) when keeping the exponent constant (suggestive of frequency of act of opportunism), with active opportunism having a larger base number than passive . . 3 3 opportunism (r.e., 3 versus 2 ). Under the treatment of ex post opportunism as a policy variable (Wathne and Heide, 2000), and in line with the logic of TCE, as long as the benefit, (i.e., the value), of 56 maintaining the relationship is greater than the cost from ex post opportunism, the relationship continues (Dupuit, 1844). However, when the cost outweighs the benefit then the firm that is the receiving party of the ex post opportunistic behavior will exit the relationship. Given a constant level of relationship benefits, i.e., assuming a non- changing level of value in the relationship over time, the differences in the accumulation of transaction costs across active and passive opportunism theoretically imply that an exit decision will be made more quickly when the accumulation of ex post opportunism is active rather than passive. That is to say a firm will tolerate the accumulation of passive ex post opportunism longer than it will tolerate the accumulation of active ex post opportunism given that the build up of transaction costs is at a lower rate under this condition thus maintaining a positive cost-benefit ratio within the relationship for a longer duration of time (where tolerance is exhibited via continuation governance decision). More formally stated: H1: Ceteris paribus, as acts of active ex post opportunism accumulate in an interorganizational buyer-seller relationship, the response of the receiving party will change from continuation to exit more quickly than as the acts of passive ex post opportunism accumulate. The Role of Economic Value and Strategic Value as a Safeguard in Interorganizational Buyer-Seller Relationships While the delineation of ex post opportunism into active and passive ex post opportunism provides insights into the timing of exit across active and passive ex post opportunism, it does not explain variations in timing of exit within active and passive ex post opportunism. That is to say, under what boundary conditions does the receiving 57 party of the active (passive) ex post opportunism tolerate a greater accumulation of active (passive) ex post opportunism? In this dissertation it is argued that the value of the buyer- supplier relationship to the receiving party of the active (passive) ex post opportunism determines the level of tolerance of the active (passive) ex post opportunistic behavior. Furthermore, the value of the relationship to the parties is composed of both an economic component and a strategic component (Williamson, 1975; Jap, 1999), for as J ap (1999, p.466) notes, “[M]any of the benefits of close relationships cannot be expressed easily in economic terms. . .[A]S such, there has been a call for investigations into a broader and more proximal set of outcome variables than has been examined in the past. There has also been little investigation into the nature of strategic returns in close relationships.” Therefore in line with J ap (1999), J ap and Anderson (2003) and Williamson (1975), in this study, value is categorized as being of two types: economic value and strategic value. For the purpose of this study, economic value of the interorganizational buyer-supplier relationship is defined as the financial outcomes derived by the parties to the relationship (Silverman, Nickerson, and Freeman, 1997; Williamson, 1975, 1985). Strategic value is defined as the non-financial benefits derived by the parties to the relationship (of, Jap, 1999; Jap and Anderson, 2003), including access to resources and technology (Aulakh, Kotabe, and Sahay, 1996; Folta and Janney, 2004; Porter, 1985), the opportunity to learn new competencies (Hennart, 1991), access to new markets (Frazier, 1983), and access to strong networks (Gulati, 1998). It is argued here that high levels of economic value and strategic value act as a safeguard (as the relationship has a higher base of benefits) against the cost of the active (passive) ex post opportunism thus ensuring greater toleration of the active (passive) ex post opportunism. Firms will tolerate 58 a greater accumulation of active (passive) ex post opportunism from a partner firm as long as the partner firm also provides financial gain and strategic gain to offset the costs from the opportunism thus delaying the move of the receiving firm to exit. Therefore, when the economic value and strategic value are high, the receiving party of the ex post opportunistic behavior will tolerate a greater accumulation of active (passive) opportunism than when the value is low because high value ensures that the cost benefit ratio of opportunism to value remains positive for longer than in the situation of low value conditions. In other words, the high economic value and high strategic value provides greater benefit to input into the cost-benefit calculation than the boundary condition of low economic value and low strategic value. Therefore, under the boundary conditions of high economic value and high strategic value, firms will tolerate a greater accumulation of active (passive) ex post opportunism than under the boundary conditions of low economic value and low strategic value. More formally stated, H2a: As acts of active ex post opportunism accumulate in an interorganizational buyer-seller relationship, the response of the receiving party will change from continuation to exit more quickly under the boundary conditions of low economic value and low strategic value than under the boundary conditions of high economic value and high strategic value. H2b: As acts of passive ex post opportunism accumulate in an interorganizational buyer-seller relationship, the response of the receiving party will change from continuation to exit more quickly under the boundary conditions of low economic value and low strategic value than under the boundary conditions of high economic value and high strategic value. 59 While previous arguments provide insights into the timing of exit from an interorganizational relationship, no insights have yet been provided as to form of exit. This is examined next. As noted previously TCE suggests two forms of exit from the buyer-seller relationship: exit through market exchange and exit through vertical integration (Williamson, 1975). In this dissertation it is argued that greater exploration of the value of the relationship to the target party of the active or passive ex post opportunism leads toward the specificity required. It is argued following that choice between exit through market exchange and exit through vertical integration is a function of the strategic value that the target party of the ex post opportunism receives from the relationship. Influence of Strategic Value on the Exit Decision In the face of the accumulation of either active ex post opportunism or passive ex post opportunism (Wathne and Heide, 2000), the firm has a choice to make, continue the relationship or exit. Within the decision to exit lie two forms of exit: exit through market exchange or exit through vertical integration (Williamson, 1975). As indicated previously, it is argued following that choice between exit through market exchange and exit through vertical integration is a function of the strategic value that the party subjected to the ex post opportunism receives from the relationship rather than a function of the economic value. It is argued that in cases of high strategic value there are likely to be limited alternative partners available to a firm that would provide the same level of strategic value as the existing partner. These alternative partners may not have access to the resources, competencies and networks of the supplier providing the high level of strategic 60 value. TCE arguments (Williamson, 1975) indicate that the ex post opportunistic behavior will be attenuated thus ensuring a reduction in the cost in the firrn’s cost-benefit calculation while retaining the benefit of the relationship via vertical integration. Therefore, although the strategic value in the relationship acts as a safeguard, when the accumulated transaction costs associated with ex post opportunism moves the cost- benefit calculus of the relationship to a negative state, firms move to protect the relationship via vertical integration even in instances where economic value is low. Alternatively, under the boundary condition of low strategic value it can be theorized that by reverting to market exchange the firm has the potential to find a new partner that could provide a higher level of strategic value. This potential higher strategic value holds promise for potential future business and the firm will be reluctant to vertically integrate its present partner and sacrifice the access to resources (Aulakh et al., 1996; Folta and J anney, 2004; Geringer, 1991; Porter, 1985), to new markets (Frazier, 1983), and to network partners (Gulati, 1998) that could develop in a relationship with an alternative partner. Therefore, in the hope of developing a new relationship with greater strategic value the firm will exit through market exchange when accumulated transaction costs associated with ex post opportunism of the extant relationship moves the cost- benefit calculus of the relationship to a negative state. This holds even when the level of economic value is high. More formally stated, H3: As acts of ex post opportunism accumulate in a relationship, firms upon deciding to exit, will exit through market exchange under the boundary conditions of high economic value and low strategic value but will exit through vertical integration under the boundary conditions of low economic value and high strategic value. 61 Control Variables As this study examines one of the underlying assumptions of TCE (i.e., opportunism) it is necessary to control for the previously discussed TCE elements to eliminate potential alternative theoretical explanations. Therefore, transaction Specific assets, environmental uncertainty, behavioral uncertainty and frequency of transactions are included in the model as control variables to minimize the Spuriousness of results. AS a hybrid form of governance is specified as the current state of on-going inter- organizational relationships, asset specificity is maintained at the intermediate level as TCE states that a hybrid form of governance is the most efficient when asset specificity is at this level (Rindfleisch and Heide, 1997). Ex post opportunism and asset specificity are the antecedents of the safeguarding problem in TCE (Rindfleisch and Heide, 1997), therefore it is crucial to control for asset specificity in a way that is in alignment with TCE. However, the other governance problems in TCE, i.e. the adaptation problem and the performance evaluation problem have bounded rationality and behavioral uncertainty as their respective antecedents (Rindfleisch and Heide, 1997). As the focus of this research is on active and passive ex post opportunism, therefore, it is possible to maintain environmental uncertainty and behavioral uncertainty at low levels. Also, in line with the logic of a long-term interorganizational buyer-seller relationship, the frequency of transaction is set as recurring transactions’. In addition industry and size of firm, respectively, are included as control variables. 3 As noted by Rindfleisch and Heide (1997), many marketing scholars (e.g., John and Weitz, 1988; Klein, Frazier and Roth, I990) treat frequency of transaction as a dichotomous variable, i.e., one-off transaction versus recurring exchange. To ensure consistency with the extant literature I continue this and control for the phenomenon of transaction frequency by defining recurrent exchanges in the scenario. 62 CHAPTER 4 Research Design Research Methods Following the extant TCE literature (e.g., Achrol and Gundlach, 1999; Dutta and John, 1995; Joshi and Arnold, 1997; Pilling, Crosby and Jackson, 1994,), an experimental scenario study is employed to test the hypotheses. The use of experimental studies provides greater internal validity and means to clearly delineate the theoretical relationships as opposed to other methods. Therefore, this dissertation employs an experimental method in five phases described next. Phases of the Study This section describes the five phases of the study. Phase one explains the pre- testing employed to validate the conceptual elements of the study. Phase two describes the pilot testing conducted before the testing of the research hypotheses. Phase three, phase four, and phase five describe the testing of research hypothesis one, two and three respectively. Phase One Phase One is an iterative process with a sample of purchasing managers aimed at providing external validity to the conceptual elements of the experiment. This includes validation of the active and passive acts of ex post opportunism, the experimental scenario presented to participants and strategic and economic value. Denoting their actuation in the interorganizational buyer—supplier context enhances external validity in the experimental stimuli. A clinical professor of purchasing management was recruited to assist in the development of the sample frame for phase one. Using the clinical 63 professor’s professional contacts, 30 purchasing managers were selected representing multiple firms across a wide variety of manufacturing industries. The identified purchasing managers were contacted by email (Appendix 1) by the clinical professor and asked to participate in phase one. The 30 purchasing managers were sent a follow-up email (Appendix 2) with an outline of the study attached (Appendix 3) and were given two weeks to return specific examples of disruptive behavior4 that they had experienced at the hands of their suppliers. After 10 days, those managers that had not yet responded with examples of ex post opportunistic behaviors were contacted again by email and reminded that the deadline was approaching (Appendix 4). To facilitate participation, respondents were promised the compiled list of examples of the behaviors upon completion of phase one. One manager declined to participate as his department did not have direct contact with suppliers. Another manager declined to participate due to pressures of time, while two other managers declined to participate as their firms were in bankruptcy proceedings and the firm lawyers did not allow them to participate. As a result, 26 purchasing managers (Group I) participated in phase one of the study. Upon receipt of the specific examples of behaviors from the executives participating in phase one of the study, all company-specific and identifying features were removed and a full list was compiled. Then, the compiled list was examined to check for duplicate behaviors. In instances where there were examples of duplicate behaviors, only one was included in the final compiled document. Additionally, the list ’ Purchasing managers were asked for examples of disruptive behaviors rather than opportunistic behaviors on the recommendation of the clinical professor who felt that “opportunistic behaviors” was too academic a term and the managers would not necessarily understand what was meant by it. He felt, and I agreed, that asking for examples of disruptive behaviors would provide examples of opportunism. 64 was examined to check for behaviors that did not fit the contemporary definition of either active or passive ex post opportunism (Wathne and Heide, 2000). In the result of a behavior not fitting these definitions of being opportunistic this behavior was also removed from the compiled list. Simultaneously a list of the extant measurement scales for opportunism was compiled (Achrol and Gundlach, 1999; Anderson, 1988; Gundlach, Achrol and Mentzer, 1995; Jap and Anderson, 2003; John, 1984; Parkhe, 1993; Provan and Skinner, 1989; Rokkan, Heide and Wathne, 2003) (Appendix 5). Those scales that measured ex ante opportunism were removed from the list, as the focus of this study is ex post opportunism. In addition, reversed items, e. g. “We always provided this importer with a completely truthful picture of our business ”, that did not demonstrate opportunistic behaviors were removed as the focus of the study is on ex post opportunistic behaviors. This then left scale items that had been used to measure ex post opportunism in a multitude of contexts including salesperson — firm relationships, interorganizational buyer-supplier relationships and channel relationships. These different contexts meant that slight differences existed in some of the scale items that were otherwise identical and were measuring the same ex post opportunistic behavior. As the focus of this study is on the actual ex post opportunistic behavior, these scale items were then grouped together into specific opportunistic behaviors. These behaviors were the sorted into active and passive ex post opportunism and were assessed by five academic experts in the field of TCE and ex post opportunism. Agreement was achieved among these experts pertaining to the final listing of active and passive ex post opportunistic behaviors derived from the extant measurement scales (Appendix 6). 65 The purchasing managers' list of ex post opportunistic behaviors was then compared against the list of the extant measurement scales with the intention of compiling a complete list of externally valid active and passive ex post opportunistic behaviors. Where there were measurement scales that were not represented on the list of externally valid behaviors, behaviors representative of these scales were added to the compiled list of ex post opportunistic behavior. This compiled list was then sent to the 26 purchasing managers (Group I) for their assessment. The list was then amended in line with the purchasing managers’ final suggestions to produce the list of active and passive ex post opportunistic behaviors in Appendix 7. Concurrently, the scenario to be used in the experiment was drafted based upon a scenario developed by Joshi and Arnold (1997). As in J oshi and Arnold's experiment, subjects in the experiment are asked to “assume the role of purchasing manager responsible for the purchase of microchips for a midsize electronic equipment manufacturer” (p. 829) (italics authors' own). The choice of microchips was made because it is a product that is bought on a repetitive basis and is a key component in electronic equipment (J oshi and Arnold, 1997) thus encouraging ongoing relationships between buyers and suppliers (of, Noordewier, John and Nevin, 1990). To ensure compatibility with this study, subjects are told that there are multiple suppliers in the market to allow subjects to exit the relationship and enter a new relationship should they so desire. Additionally, the scenario states that the relationship is two years old and has had no problems so far to control for prior opportunistic behavior and length of the relationship. 66 It was also important to control for alternative theoretical explanations within TCE. TCE describes three governance problems: the safeguarding problem, the adaptation problem, and the performance evaluation problem (Rindfleisch and Heide, 1997). The antecedents of the safeguarding problem are ex post opportunism and asset specificity. The study necessitates an ongoing interorganizational relationship as a starting point; therefore it is imperative to set the level of asset specificity in the scenario to intermediate level (i.e., neither a significant nor insignificant amount of investments specifically dedicated to the relationship with the one supplier in the scenario) as TCE states that a hybrid form of governance is the most efficient when asset specificity is at this level (Rindfleisch and Heide, 1997). However, the adaptation problem and the performance evaluation problem have bounded rationality and behavioral uncertainty as their respective antecedents (Rindfleisch and Heide, 1997). As the focus of this research is on active and passive ex post opportunism, therefore, it is possible to maintain environmental uncertainty at a low level (i.e., no unanticipated changes in the external environment or in the demand for the product) and behavioral uncertainty at a low level (i.e. it is easy to verify the performance of the supplier). In line with TCE, the assumption is made that participants in the study are limited in their behavior by bounded rationality. Also, as noted previously and in line with the logic of a long-term interorganizational buyer-seller relationship, the frequency of transaction is set as recurring transactions. In addition, the explanations of different levels of strategic value and economic value were drafted in line with the extant academic literature to incorporate levels of economic benefit and strategic benefit that buyers derive from a relationship with a supplier. 67 In line with White, Varadarajan and Dacin (2003), an email (Appendix 8) was then sent to the participating purchasing managers (Group I) with two attachments, one asking them to comment on the realism of the scenario (Appendix 9) and the other on the appropriateness of the definitions of value (Appendix 10). After one week a follow-up email was sent to participants who had not yet responded to the initial email request (Appendix 11). The scenarios and definitions were then altered slightly in line with the responses of the purchasing managers. The finalized scenario and finalized definitions of strategic value and economic value can be seen in Appendices l2 and 13 respectively. Next, each example of active and passive ex post opportunism from Appendix 7 was dissected into a consequence to the buyer and opportunistic behavior by the supplier. This was done in conjunction with the extant literature on active and passive ex post opportunism (e. g., Wathne and Heide, 2000) and the extant ex post opportunism measurement scales. Where there was no consequence to the buyer of the supplier’s ex post opportunism e. g., “Your supplier manufacturers the product in location X, however, a fire breaks out and burns down the manufacturing location. Your supplier does not inform you of the fire and continues to ship product from the US where they have built up inventory. You find out about the fire from a news article ”, the behavior was deleted. Where possible active and passive ex post opportunistic behaviors that had the same consequence for the buyer were paired together, and in instances where a pair was not available, one was written. Consequence, active ex post opportunistic behaviors and passive ex post opportunistic behaviors can be seen in Appendix 14. Next, this table of consequences was sent to the same participating group of purchasing professionals (Group 1) as an attachment to an email (Appendix 15) with the 68 active and passive ex post opportunistic behaviors mixed and with the request that for each consequence the participants state which of the behaviors are active ex post opportunism (i.e., opportunism by commission) and which are passive ex post opportunism (i.e., opportunism by omission). Additionally, participants were invited to edit the document to help improve clarity where necessary. The participants were able to correctly define active and passive opportunistic behaviors expect in the instances of passive and active ex post opportunism under new circumstances, e.g., when the buyer had extra demand for the supplier to help meet, or there was a new order etc. When participants were unable to clearly identify active or passive ex post opportunism, the behaviors were removed. Next, the remaining consequences were pretested for equivalence of consequence. The experiment involves an accumulation of behaviors; as such it is essential that the consequence of behaviors is equivalent to ensure that any response is to a build up of consequences rather than one single, particularly strong consequence. A new group of 20 purchasing professionals (Group 2) was randomly selected from local manufacturing businesses in the local area telephone directory, contacted by telephone and asked to rate the consequences from 1 to 7, where I indicates a very low cost to them, 4 neither high nor low cost to them, while 7 indicates a very high cost to them (Appendix 16). An Analysis of Variance (ANOVA) was then conducted in SPSS 12.0 to ensure that all the consequences were equivalent in cost. The results of the ANOVA (Appendix 17) (N=20) Show that all the consequences were equivalent in cost (F (4,99) = 0.297, p = 0.879). Next, the active and passive ex post opportunistic behaviors were matched to the extant measures and those extant measures scales that had a match were included in the 69 pretest of differences in intensity between active and passive ex post opportunistic behaviors. It is key for the experiment that the passive and active ex post opportunistic behaviors are different across type to ensure differing response to active and passive ex post opportunistic behavior in the final experiment. The same 20 purchasing professionals (Group 2) that rated the cost of the consequences were again contacted by telephone and asked to rate the active and passive ex post opportunistic behaviors from 1 to 7, where 1 indicates a very low intensity, 4 neither high nor low intensity, while 7 indicates a very high intensity (Appendix 18). An Analysis of Variance (ANOVA) was then conducted in SPSS 12.0 for Windows to check for differences in intensity. All the ratings of the active ex post opportunistic behaviors were grouped together and all the ratings of the passive ex post opportunistic behavior were grouped together and an ANOVA was conducted to check for differences across groups (Appendix 19). Results indicate that the intensity of active ex post opportunistic behaviors was higher than the intensity of passive ex post opportunistic behaviors (F (1,198) = 122.397, p < 0.001). Next, using the ratings on the behaviors in Appendix 18 received from the purchasing managers, analysis was conducted to ensure equivalency of intensity of active ex post opportunistic behaviors. The results of the ANOVA (Appendix 20) indicate that there are differences in intensity within the active ex post opportunistic behaviors (F (5,114) = 2.894, p < 0.05). Examination of the results from the post-hoe Tukey test indicates that the mean intensity of “Your supplier makes false accusations” is significantly different than the mean intensity of “Your supplier violates agreements” (p < 0.05) and “Your supplier provides you with false information” (p < 0.1). Consequently, 70 “Your supplier makes false accusations” was removed from consideration for the experiment. Further, the passive ex post opportunistic behaviors were examined for equivalence in intensity. Results of the ANOVA (Appendix 21) indicate that there are differences in intensity within the passive ex post opportunistic behaviors (F (3,76) = 4.597, p < 0.01). Examination of the results of the post-hoe Tukey test indicates that the mean intensity of “Your supplier does not take responsibility for his/her actions” is significantly different than the mean intensity of “Your supplier hides information from you” (p < 0.05) and the mean intensity of “Your supplier does not provide proper notification” (p < 0.05). Consequently, “Your supplier does not take responsibility for his/her actions” was removed from consideration for the experiment. Next, the remaining examples of active and passive ex post opportunistic behavior and consequences were modified to ensure compatibility with the scenario (Appendix 22). The original group of 26 purchasing managers (Group 1) were contacted and asked to read the examples and explain in their own words what they understood from the examples. For the examples of passive ex post opportunism the participants identified the examples as meaning: fewer microchips being delivered and the supplier not providing notification that fewer would be delivered and the reason why; the delivery not arriving on time and the supplier not informing/notifying the buyer that the delivery would not be on time; receiving microchips with defects and the supplier not informing the buyer of the problem in production line that has led to the defects; non-compliant microchips being delivered and the supplier not specifying compliance or lack of (i.e., hiding information); and microchips being delivered that do not meet contractual standard and 71 the supplier not informing the buyer of the change in production facilities that led to the problem in meeting the contractual standard. For the examples of active ex post opportunism the participants identified the examples as meaning: fewer microchips being delivered and the supplier violating the contract by prioritizing another customer thus leading to the shortage; the delivery not arriving on time and the supplier previously misinforming you (i.e., lying to you) that it would arrive on time; receiving microchips with defects and the supplier violating the contract by changing the production line thus leading to defects; non-compliant microchips being delivered and the supplier intentionally mislabeling these microchips; and microchips being delivered that do not meet contractual standard and the supplier violating the contract by changing production facilities leading to the substandard microchips. Finally, these examples of active and passive ex post opportunistic behavior with consequences were tested for difference in intensity between the active ex post opportunistic examples and the passive ex post opportunistic examples. A new group of 20 purchasing professionals (Group 3) was randomly selected from local manufacturing businesses in the local area telephone directory, contacted by telephone and asked to rate the examples of active and passive ex post opportunistic behavior fi'om 1 to 7, where 1 indicates a very low intensity, 4 neither high nor low intensity, while 7 indicates a very high intensity (Appendix 23). Analysis of the passive ex post opportunistic behaviors and consequences was conducted to see if they were equivalent in intensity. Results of this analysis (Appendix 24) indicate differences in the intensity of the passive ex post Opportunistic behaviors and consequences (F (4,95) = 30.135, p < 0.001). The post-hoe Tukey comparisons indicate 72 that the mean of “Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Subsequently you learn from a reliable source that your supplier has changed production facilities and you suspect this may be the cause. In conversation with your supplier, your supplier has not informed you about the change” is different from all the other means. Post-hoe conversations with the purchasing managers indicated that they felt that the change in production facilities was a definite violation of the contract and therefore very serious on its own therefore overpowering any non-informing that was taking place. As a result, this passive ex post opportunistic behavior and consequence was removed from consideration for the experiment. Analysis of the active ex post opportunistic behaviors and consequences (Appendix 25) indicate no statistical differences in the intensities of the active opportunistic behaviors and consequences (F (4,95) = 1.791 , p = 0.137). As a result, there was no need to remove any of the active ex post opportunistic behaviors and consequences. However, as “Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Subsequently you learn from a reliable source that your supplier has changed production facilities and you suspect this may be the cause. In conversation with your supplier, your supplier has not informed you about the change” had been removed from consideration for the pilot test in phase two and experiment in phases three, four and five, the active equivalent, “Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Your supplier informs you that, in violation of your contract with 73 them, they have changed production facilities and some problems led to the microchips not meeting the standard”, was also removed from consideration. Finally, a pretest was conducted between active and passive ex post opportunistic behaviors and consequences to ensures differences between the active examples and the passive examples. The results of the ANOVA can be seen in Appendix 26. Results indicate that the intensity of active ex post opportunistic behaviors and consequences was higher than the intensity of passive ex post opportunistic behaviors and consequences (F (1,158) = 335.884, p < 0.001). This successful conclusion to the pre-testing enables the move to phase two. Phase Two Phase two was conducted to ensure comprehension and recall of the scenario to be used in the experimental phases. A new group of 20 purchasing managers (Group 4) was randomly selected from local manufacturing businesses in the local area telephone directory, contacted by telephone and asked if they would be willing to take part in a piece of research into buyer-supplier relationships. They consented and were told that they were going to be read an interorganizational buyer-supplier scenario and asked questions based upon the scenario. They were then read the script in Appendix 27. Subsequently, they were asked to recount what they remembered from the scenario to check for comprehension and recall of the scenario (of, Petty, Cacioppo and Schumann, 1983). Participants were able to recall key components of the scenario. This testing allowed the research to move onto phases three and beyond. 74 Phase Three Phase three is a 2 (ex post opportunism: active, passive) x 2 (time: time 1, following time periods) factorial design experimental study with one between-subject factor and one within-subj ect factor to empirically examine research hypothesis one. The order of opportunistic behavior was determined randomly with consequences matched across active and passive. In order to test research hypothesis one, it was necessary to recruit a total of 90 participants, 45 per treatment, to ensure sufficient power (Cohen, 1988). In addition, as participants were asked to roleplay a purchasing manager in a long-term interorganizational buyer-supplier relationship, it was required that the participants be purchasing professionals as they have the knowledge and expertise of the situations required for them to be able to make informed decisions in the experimental setting. This would ensure that the participants fulfill the criteria to be key informants (Campbell, 1955) for the study. The steps outlined below were taken to get 90 purchasing professionals to participate in this stage of the research. First, a list of 5,000 purchasing professionals was provided by the Institute of Supply Management (ISM) upon request. These 5,000 purchasing professionals were randomly distributed throughout all manufacturing industries. Decisions were made to exclude certain participants on the list from consideration for inclusion in the following phases as follows. Two hundred and sixteen purchasing professionals were excluded, as they were non-US. members of ISM and the study focuses on US. domestic buyer- supplier relationships. Nine members with only billing addresses were excluded as the researcher intended to contact the individuals by telephone and telephone numbers are 75 not available for billing addresses. Finally, 1,682 members with home addresses were excluded as the researcher was going to contact individuals by telephone and did not want to disturb people at home. This left a list of 3,093 purchasing professionals to draw the sample from. The researcher then attempted to find telephone numbers for these 3,093 purchasing professionals on the list through www.whitepages.com. Telephone numbers could not be found for 728 of these 3,093 purchasing professionals leaving a final list of 2,365 purchasing professionals. The 90 participants (45 per treatment cell) to be randomly assigned to either the active ex post opportunism treatment or passive ex post opportunism treatment were randomly selected from this list and contacted by telephone to elicit participation. Each participant was contacted a maximum of ten times and if they had not answered the telephone or returned a call to the researcher after the 10th attempt to contact them then they were counted as a non-respondent. Participants that answered the telephone or returned the phone call were informed that the researcher was a doctoral candidate at Michigan State University and that their name had been provided by ISM. They were given a brief explanation of what the research entailed and asked if: a) they were willing to participate, and b) they were knowledgeable enough to respond. Of the initial 90 purchasing professionals contacted, 53 agreed to participate, I3 refused to participate citing reasons of lack of time, lack of interest or company policy, 10 did not return the phone call and 14 had left the company. Subsequently, another 37 purchasing professionals (to ensure a sample of 90 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 17 agreed to participate, two refused to 76 participate citing reasons of time, lack of interest or company policy, 10 did not return the phone call and eight had left the company. Subsequently, another 20 purchasing professionals (to ensure a sample of 90 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 13 agreed to participate, three refused to participate citing reasons of time, lack of interest or company policy, three did not return the phone call, and one had left the company. Subsequently, another seven purchasing professionals (to ensure a sample of 90 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, four agreed to participate, one refused to participate citing reasons of time, lack of interest or company policy, and two did not return the phone call. Subsequently, another three purchasing professionals (to ensure a sample of 90 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, all three agreed to participate. This resulted in a response rate of 67.16% (90 out of 134). 50 of these were male and 40 were female. 10 ‘of these had completed high school, 23 had completed some college, 35 had completed a bachelor’s degree and 10 had a master’s degree or above. The 90 purchasing professionals that agreed to participate in the experiment were then randomly assigned to either the active ex post opportunism treatment or the passive ex post opportunism treatment resulting in 45 participants per treatment. The script for the active ex post opportunism treatment and passive ex post opportunism treatment can be seen in Appendix 28 and Appendix 29 respectively. \ Participants were read the script (either active or passive depending on treatment) over 77 the telephone and asked to answer a, b, c, or d. If participants answered a or b then the researcher continued reading as per the script, however, if the participant answered c or (1 they were thanked and asked the questions from Appendix 30. The researcher continued reading the script until the participant chose either c or d. Then the participant was thanked and asked the questions from Appendix 30. The researcher noted how many examples of ex post opportunism (either active or passive depending upon treatment) that the participants tolerated before exiting the interorganizational buyer-seller relationship, whether the participant chose to exit through market exchange or vertical integration, and the responses to the questions from Appendix 30. 12 out of the 90 participants chose not to respond to the questions in Appendix 30. Then an ANOVA was conducted to see if there were any differences in mean tolerance the accumulation of opportunism between those subjects in the active ex post opportunism treatment group and those subjects in the passive ex post opportunism treatment group. Phase Four Phase four is a 2 (ex post opportunism: active, passive) x 2 (economic value strategic value: high high, low low) x 2 (time: time 1, following time periods) factorial design experimental study with two between-subj ect factors and one within-subj ect factor to empirically examine research hypothesis two. The order of opportunistic behavior was the same as in phase three. In order to test research hypothesis two, it was necessary to recruit a total of 180 participants, 45 per treatment, to ensure sufficient power (Cohen, 1988). In addition, as participants were asked to roleplay a purchasing manager in a long-term 78 interorganizational buyer-supplier relationship, it was required that the participants be purchasing professionals as they have the knowledge and expertise of the situations required for them to be able to make informed decisions in the experimental setting. This would ensure that the participants fulfill the criteria to be key informants (Campbell, 1955) for the study. The same steps outlined to recruit participants in phase three were taken to recruit the 180 purchasing professionals to participate in this stage of the research. The 180 participants (45 per treatment cell) to be randomly assigned to either the active ex post opportunism high economic value high strategic value treatment, active ex post opportunism low economic value low strategic value treatment, passive ex post opportunism high economic value high strategic value treatment, or passive ex post opportunism low economic value low strategic value treatment, were randomly selected from the list supplied by ISM and contacted by telephone to elicit participation. Each participant was contacted a maximum of ten times and if they had not answered the telephone or returned a call to the researcher after the 10th attempt to contact them then they were counted as a non-respondent. Participants that answered the telephone or returned the phone call were informed that the researcher was a doctoral candidate at Michigan State University and that their name had been provided by ISM. They were given a brief explanation of what the research entailed and asked if: a) they were willing to participate, and b) they were knowledgeable enough to respond. Of the 180 purchasing professionals contacted, 106 agreed to participate, 22 refused to participate citing reasons of lack of time, lack of interest or company policy, 44 did not return the phone call and eight had left the company. Subsequently, another 74 79 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 47 agreed to participate, one refused to participate citing reasons of time, lack of interest or company policy, 20 did not return the phone call and six had left the company. Subsequently, another 27 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 16 agreed to participate, eight did not return the phone call and three had left the company. Subsequently, another 11 purchasing professionals (to ensure a sample of I80 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, two agreed to participate, one refused to participate citing reasons of time, lack of interest or company policy, five did not return the phone call and three had left the company. Subsequently, another nine purchasing professionals (to ensure a sample of I80 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, seven agreed to participate, one refused to participate citing reasons of time, lack of interest or company policy, and one did not return the phone call. Finally, another two purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, all agreed to participate. This resulted in a response rate of 63.6% (180 out of 283). 99 of these were male and 81 were female. 17 of these had 80 completed high school, 53 had completed some college, 62 had completed a bachelor’s degree and 33 had a master’s degree or above. The 180 purchasing professionals that agreed to participate in the experiment were then randomly assigned to one of the following four treatments: active ex post opportunism high economic value high strategic value treatment; active ex post opportunism low economic value low strategic value treatment; passive ex post opportunism high economic value high strategic value treatment; or passive ex post opportunism low economic value low strategic value treatment. 45 participants were assigned to each treatment. The scripts for active ex post opportunism high economic value high strategic value treatment; active ex post opportunism low economic value low strategic value treatment; passive ex post opportunism high economic value high strategic value treatment; and passive ex post opportunism low economic value low strategic value treatment can be seen in Appendix 31, Appendix 32, Appendix 33, and Appendix 34 respectively. Participants were read the script (depending on treatment) over the telephone and asked to answer a, b, c, or d. If participants answered a or b then the researcher continued reading as per the script, however, if the participant answered c or (1 they were thanked and asked the questions from Appendix 35. The researcher continued reading the script until the participant chose either c or d. Then the participant was thanked and asked the questions from Appendix 35. The researcher noted how many examples of ex post opportunism (either active or passive depending upon treatment) that the participants tolerated before exiting the interorganizational buyer-seller relationship, whether the participant chose to exit through 81 market exchange or vertical integration and the responses to the questions in Appendix 35. All participants responded to question one, 168 participants responded to question two, 168 participants responded to question three, 103 participants responded to question four (non-respondents worked for private companies and were not allowed to divulge this information), 165 participants responded to question five, 85 participants responded to question six (non-respondents cited reasons of time or not understanding the question), and 77 participants responded to question seven (non-respondents cited reasons of time or not understanding the question). For the active ex post opportunism treatments, an ANOVA was conducted to see if there were any differences in mean tolerance of active ex post opportunism between those subjects in the high economic value high strategic value treatment and those subjects in the low economic value low strategic value treatment. For the passive ex post opportunism treatments, 3 t-test for equality of means where equal variances are not assumed and an ANOVA was conducted to see if there were any differences in mean tolerance of passive ex post opportunism between those subjects in the high economic value high strategic value treatment and those subjects in the low economic value low strategic value treatment. Phase Five Phase five is a 2 (ex post opportunism: active, passive) x 2 (economic value strategic value: high low, low high) x 2 (time: time 1, following time periods) factorial design experimental study with two between-subject factors and one within-subject factor to empirically examine research hypothesis three. The order of opportunistic behavior was the same as in phase three and phase four. 82 In order to test research hypothesis three, it was necessary to recruit a total of 180 participants, 45 per treatment, to ensure sufficient power (Cohen, 1988). In addition, as participants were asked to roleplay a purchasing manager in a long-term interorganizational buyer-supplier relationship, it was required that the participants be purchasing professionals as they have the knowledge and expertise of the situations required for them to be able to make informed decisions in the experimental setting. This would ensure that the participants fulfill the criteria to be key informants (Campbell, 1955) for the study. The same steps outlined to recruit participants in phases three and four were taken to recruit the 180 purchasing professionals to participate in this stage of the research. The 180 participants (45 per treatment cell) to be randomly assigned to either the active ex post opportunism high economic value low strategic value treatment, active ex post opportunism low economic value high strategic value treatment, passive ex post opportunism high economic value low strategic value treatment, or passive ex post opportunism low economic value high strategic value treatment, were randomly selected from the list supplied by ISM and contacted by telephone to elicit participation. Each participant was contacted a maximum often times and if they had not answered the telephone or returned a call to the researcher after the 10th attempt to contact them then they were counted as a non-respondent. Participants that answered the telephone or returned the phone call were informed that the researcher was a doctoral candidate at Michigan State University and that their name had been provided by ISM. They were given a brief explanation of what the research entailed and asked if: a) they were willing to participate, and b) they were knowledgeable enough to respond. 83 Of the 180 purchasing professionals contacted, 95 agreed to participate, 12 refused to participate citing reasons of lack of time, lack of interest or company policy, 47 did not return the phone call and 26 had left the company. Subsequently, another 85 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 38 agreed to participate, 12 refused to participate citing reasons of time, lack of interest or company policy, 23 did not return the phone call and 12 had left the company. Subsequently, another 47 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 23 agreed to participate, six refused to participate citing reasons of time, lack of interest or company policy, nine did not return the phone call, and nine had left the company. Subsequently, another 24 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, 13 agreed to participate, two refused to participate citing reasons of time, lack of interest or company policy, five did not return the phone call and four had left the company. Subsequently, another 11 purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to participate in the study as before. Of these, seven agreed to participate, two did not return the phone call and two had left the company. Finally, another four purchasing professionals (to ensure a sample of 180 purchasing professionals) were randomly sampled from the list and identical steps were followed to get them to 84 participate in the study as before. Of these, all agreed to participate. This ensured a response rate of 60.4% (180 out of 298). 102 of these were male and 78 were female. 35 of these had completed high school, 44 had completed some college, 56 had completed a bachelor’s degree and 27 had a master’s degree or above. Participants were randomly assigned to one of four treatments: active ex post opportunism high economic value low strategic value treatment; active ex post opportunism low economic value high strategic value treatment; passive ex post opportunism high economic value low strategic value treatment; or passive ex post opportunism low economic value high strategic value treatment. 45 participants were assigned to each treatment. The scripts for active ex post opportunism high economic value low strategic value treatment; active ex post opportunism low economic value high strategic value treatment; passive ex post opportunism high economic value low strategic value treatment; and passive ex post opportunism low economic value high strategic value treatment can be seen in Appendix 36, Appendix 37, Appendix 38, and Appendix 39 respectively. Participants were read the script (depending on treatment) over the telephone and asked to answer a, b, c, or d. If participants answered a or b then the researcher continued reading as per the script, however, if the participant answered c or (1 they were thanked and asked the questions from Appendix 35. The researcher continued reading the script until the participant chose either c or d. Then the participant was thanked and asked the questions from Appendix 35. The researcher noted whether the participant chose to exit through market exchange or vertical integration, and the responses to the questions in Appendix 35. All 85 participants responded to question one, 176 participants responded to question 2, 176 participants responded to question three, 61 participants responded to question four (non- respondents worked for private companies and were not allowed to divulge this information), 162 participants responded to question five, 93 participants responded to question six (non-respondents cited reasons of time or not understanding the question), and 87 participants responded to question seven (non-respondents cited reasons of time or not understanding the question). 86 CHAPTER 5 Results of the Analysis Research Hypothesis One Hypothesis one states that the responses of parties to ex post opportunism will move more quickly toward exit in the face of the accumulation of active ex post opportunism as opposed to in the face of the accumulation of passive ex post opportunism. Calculation of the Levene statistic for homo genous variance, descriptive statistics and the results of the ANOVA to test hypothesis one can be seen in Appendix 40. The Levene statistic (1.030, p = 0.313) indicates that the two groups have homogenous variance thus allowing the use of ANOVA for the analysis. Results of the ANOVA indicate that the means of the two groups are different (Mauive = 2.98, Mpassive = 4.00; F (1,88) = 24.934, p < 0.001). This indicates that ceteris paribus, the mean tolerance of passive ex post opportunism is 4.00 instances whereas the mean tolerance of active ex post opportunism is 2.98 instances. Therefore, H1 is supported. Gender (male / female), sales of the participant’s firm (less than $500 million / greater than $500 million), and education level (high school / some college / bachelors degree / graduate degree) were adopted as control variables in the analysis of H1. None of these control variables were found to have a significant effect on time of exit (Gender, F = 1.876, p = 0.174; Education level, P = 1.239, p = 0.301; Sales, F = 0.863, p = 0.357). Research Hypothesis Two Hypothesis two part (a) states the responses of parties to the accumulation of active ex post opportunism will move more quickly toward exit under the boundary conditions of low economic value and low strategic value than under the boundary 87 conditions of high economic value and high strategic value. Calculation of the Levene statistic for homogenous variance, descriptive statistics and the results of the ANOVA to test hypothesis two (a) can be seen in Appendix 41. The Levene statistic (1.254, p = 0.266) indicates that the two groups have homogenous variance thus allowing the use of ANOVA for the analysis. Results of the ANOVA indicate that the means of the two groups are different (Mhighjfigh = 3.93, Mjowjow = 2.80; F (1,88) = 24.933, p < 0.001). This indicates that the mean tolerance of active ex post opportunism under the boundary conditions of high economic value and high strategic value is 3.93 instances, whereas the mean tolerance of active ex post opportunism under the boundary conditions of low economic value and low strategic value is 2.80 instances. Therefore, H2a is supported. Gender (male / female), sales of the participant’s firm (less than $500 million / greater than $500 million), and education level (high school / some college / bachelors degree / graduate degree) were adopted as control variables in the analysis of H2a. None of these control variables were found to have a significant effect on time of exit (Gender, F = 0.913, p = 0.342; Education level, F = 0.715, p = 0.546; Sales, F = 1.062, p = 0.308). Hypothesis two part (b) states the responses of parties to the accumulation of passive ex post opportunism will move more quickly toward exit under the boundary conditions of low economic value and low strategic value than under the boundary conditions of high economic value and high strategic value. Calculation of the Levene statistic for homogenous variance, descriptive statistics, the results of the ANOVA to test hypothesis two (b), and the result of the t-test for equality of means where equal variances are not assumed to test hypothesis two (b) can be seen in Appendix 42. The Levene statistic (15.080, p < 0.001) indicates that the two groups cannot be assumed to 88 have homogenous variance violating the assumption of homogenous variance in ANOVA. Therefore, in addition to ANOVA, a t-test for equality of means where equal variances are not assumed was also conducted. Results of the t-test and ANOVA are consistent with one another. The results of the t-test indicate that the means of the two groups are different (Mhighmigh = 4.73, Mlowjow = 2.91; t (60.394) = 5.318, p < 0.001). Likewise the results of the ANOVA indicate that the means of the two groups are different (Mhighjfigh = 4.73, Mlow‘mw = 2.91; F (I, 88) = 28.285, p < 0.001). This indicates that the mean tolerance of passive ex post opportunism under the boundary conditions of high economic value and high strategic value is 4.73 instances, whereas the mean tolerance of passive ex post opportunism under the boundary conditions of low economic value and low strategic value is 2.91 instances. Therefore, H2b is supported. Gender (male / female), sales of the participant’s firm (less than $500 million / greater than $500 million), and education level (high school / some college / bachelors degree / graduate degree) were adopted as control variables in the analysis of H2b. None of these control variables were found to have a significant effect on time of exit (Gender, F = 0.172, p = 0.679; Education level, F = 0.505, p = 0.680; Sales, F = 0.722, p = 0.400). Research Hypothesis Three Hypothesis three states that in the face of the accumulation of ex post opportunism firms will tend to exit through market exchange under the boundary conditions of high economic value and low strategic value and will tend to exit through vertical integration under the boundary conditions of low economic value and high strategic value. No participants in any of the treatments chose to exit through vertical integration. Therefore, H3 is not supported. 89 Question six in Appendix 35 probed participants for information regarding why they did not choose to vertically integrate. Answers to this question were partially transcribed and analyzed by hand (of, Price and Amould, I999). The dominant theme emerging from the responses to this question was that the reason why the participants had not chosen to vertically integrate was because producing microchips was not a core competency of the buyer firm in the scenario and as such the buyer would not have the capabilities necessary to produce the microchip in-house even after buying the supplier. Participants felt that the microchip being sourced was a commodity part that could be sourced from many different suppliers and only as a last resort would they consider to vertically integrate. Examples of some of the representative responses to the question include: “There are multiple suppliers available so if I was in the business of making electronic components then I would want to exhaust all my buy opportunities before I make this chip myself. It’s not my core competency and as long as supply is available then until I feel a threat to the supply in the market I buy.” “If my company had the ability to do this then I would not be sourcing to begin with so just buying another company does not provide me with the capabilities and so I would not do it.” “It’s not my core competency so I will fall flat on my face if I do this.” Likewise question seven in Appendix 35 probed participants for information regarding the role of strategic value and economic value in the decisions made in the scenario. Answers to this question were partially transcribed and analyzed by hand (of, 90 Price and Amould, 1999). The dominant theme emerging from the responses to this question was that participants mainly considered the economic value from the relationship rather than the strategic value when making the decisions in the scenario. Examples of some of the representative responses to the question include: “The economic value is the most important as not every supplier can provide the same economic value for you. Strategic (value) is not as important as this (economic value).” “Bottom line is the economic value is important — we don’t jump ship straight away.” “Economic value is really important but when the quality suffers and the relationships starts to have problems then the economic value is secondary and I will look to other suppliers.” 91 CHAPTER 6 Theoretical and Managerial Contributions of the Study The motivation behind this dissertation was to understand the theoretical differences in responses to the accumulation of active and passive ex post opportunism in interorganizational buyer-supplier relationships, and how the understanding of these differences would extend theory and influence interorganizational buyer-supplier relationship governance. AS such, three questions were proposed in this dissertation: (1) Do buyers respond differently to the accumulation of active ex post opportunism as opposed to the accumulation of passive ex post opportunism by suppliers in long-term interorganizational relationships? (2) What accumulation of either active or passive ex post opportunism do buyers tolerate before changing the governance structure and how is this impacted by the various boundary conditions of value? (3) Under what boundary conditions do buyers exit through vertical integration and under what boundary conditions do they exit through market exchange? The results of this dissertation provide insights into answering the aforementioned questions with implication for marketing academics and practitioners. Theoretical Contributions of the Study Underlying the first research question is the key theoretical argument that ex post opportunism is of two different forms: active ex post opportunism and passive ex post opportunism (W athne and Heide, 2000), with differing governance responses to these different forms. Specifically, Wathne and Heide (2000) expand upon Williamson’s (1975) conceptualization of opportunism to posit these two different forms, however, their work is conceptual in nature. As such, they do not empirically test differences in 92 governance responses across the different forms of ex post opportunism. The findings of this work directly address this limitation in the literature by providing evidence of differences in governance responses to active and passive ex post opportunism in interorganizational buyer-supplier relationships. Specifically to address the first research question this study examined responses toward active and passive ex post opportunism. The findings demonstrate the tolerance level of buyers toward ex post opportunism by suppliers is contingent upon the form of ex post opportunism engaged in by the supplier. Buyers were found to respond by exiting an interorganizational buyer-supplier relationship more quickly in the face of the accumulation of active ex post opportunism by the supplier than in the face of the accumulation of passive ex post opportunism by the supplier. Thus supporting the theoretical contention made in this dissertation that buyers will tolerate a greater accumulation of passive ex post opportunism than active ex post opportunism. This finding not only provides empirical support for Wathne and Heide's (2000) delineation of ex post opportunism into the active and passive forms with subsequent differences in the consequences of the two forms, but also extends Wathne and Heide’s (2000) work through the inclusion of the concept of accumulation. This is a significant contribution to the literature as the examination of accumulation is consistent with the longitudinal nature of TCE, which heretofore has been neglected in the extant literature, thus not providing interorganizational governance scholars with a better understanding of the long-term nature of transaction cost economics. While the study of the accumulation of active and passive ex post opportunism explains toleration to opportunism across forms of opportunism, it fails to provide a fully bounded theoretical perspective of the response 93 to accumulation within forms of ex post opportunism. To do this, the boundary constraint of value was examined. The importance of value in interorganizational buyer-supplier relationships was proposed by Williamson (1 975) and further expanded upon conceptually by J ap (1999) who stated that, “[M]any of the benefits of close relationships cannot be expressed easily in economic terms. . .[A]S such, there has been a call for investigations into a broader and more proximal set of outcome variables than has been examined in the past. There has also been little investigation into the nature of strategic returns in close relationships.” Through the incorporation of the value boundary parameter, via the inclusion of both economic value and strategic value, the underlying TCE model for interorganizational buyer-supplier relationship governance becomes more clearly specified. In examining the influence of value on the tolerance of the accumulation of ex post opportunism, the findings of this dissertation Show that the existence of high levels of economic value and strategic value in a relationship act as a buffer against the cost of the accumulation of the ex post opportunism. The findings Show that when the buyer derives high levels of economic value and high levels of strategic value from the interorganizational relationship then he/she will tolerate greater accumulation of active ex post opportunism than when he/she derives low levels of economic value and low levels of strategic value. Likewise, in the face of the accumulation of passive ex post opportunism, the buyer will tolerate a greater accumulation when he/she derives high levels of economic value and high levels of strategic value then when he/she derives low levels of economic value and low levels of strategic value. 94 Further, these findings provide empirical support for the theoretical arguments of Ghosh and John (1999) and Kaufrnann (1987) that relationships should be analyzed from the perspective of value. For without the acknowledgement of the level of value in the relationship, one would be unable to provide sufficient understanding of what drives the level of toleration of active or passive ex post opportunism within these forms of ex post opportunism. As such, these findings answer critics of TCE who charge that empirical works in TCE focus purely on cost minimization and neglect the concept of value. By including levels of value in the model in this dissertation, there is an incorporation of both cost minimization and value thus providing more specificity in models of interorganizational buyer-supplier governance. Upon the decision to exit the interorganizational buyer-supplier relationship, TCE provides for two choices of exit to the buyer: exit through vertical integration or exit through reverting to market exchange. Traditional TCE arguments would indicate that the level of specific assets determines the choice of exit, with higher levels of asset specificity leading to exit through vertical integration. In this dissertation, the level of asset Specificity was held at the intermediate level with theoretical arguments made that higher levels of strategic value would drive firms toward exit through vertical integration as a means to protect the level of strategic value. However, the findings indicate that irrespective of the level of strategic value in the relationship, buyers choose to exit through reverting to purchasing from a new supplier thus avoiding vertical integration. Findings also indicate that a potential reason for this avoidance of vertical integration is one of core competency. Specifically, some participants reasoned that the supplier was performing a task for the buyer that was not one of the core competencies of the buyer 95 and as such integrating this non-core competency into the purchasing firm would be unsuccessful and lead to greater problems for the firm than opting to use another supplier. However, this exit of one relationship toward a new supplier necessitates giving up a value-laden relationship for a relationship with a new supplier that potentially does not provide the same levels of value to the buyer. Theoretically, one potential means of overcoming the problem of a lack of core competency that would enable firms to protect these value-laden relationships is for the firm to engage in plural governance as discussed next. Plural governance is when a firm simultaneously uses both vertical integration and market exchange for the same transaction (Heide, 2003). Plural governance is a relatively widespread phenomenon, although one that is comparatively underresearched in the extant marketing literature (Heide, 2003). Scholars have argued for many benefits of plural governance including a reduction in information asymmetry as a result of the expertise developed in the production of the part that is sourced (Heide, 2003; Walker and Weber, 1984), and as a safeguard to help manage independent sales representatives (Dutta, Bergen, Heide and John, 1995). In addition to these aforementioned benefits, the results of this dissertation suggest that plural governance could be used to protect value- laden relationships, as its implementation would enable the buyer firm to develop the relevant expertise in-house that would allow the firm to successfully integrate a supplier firm that was engaging in ex post opportunistic behavior and yet provided high levels of strategic and economic value to the buyer. In essence, the use of plural governance by the buyer will make viable the option of vertical integration should the buyer firm decide it is 96 the best option in the face of the accumulation of either active or passive ex post opportunism. Managerial Implications of the Study The managerial implications of this dissertation fall under two broad categories: (1) the implications for buyer firms whose supplier partners are engaging in ex post opportunism, and (2) the implications for the perpetrators of ex post opportunism. First, consider a buyer firm that is faced with the potential of ex post opportunism by its supplier partner. This research explicates the behavioral reactions of managers to the specific stimuli of the accumulation of active and passive ex post opportunism. The specification of behavioral reactions allows for greater insights into how managers make decisions in response to opportunistic behavior by partners, thus providing an in-depth analysis of the behaviors that managers are actually engaging in. It is demonstrated in this research that managers tend to exit from relationships more quickly in the face of active ex post opportunism than in the face of passive ex post opportunism. This is important for the reason elaborated following. Whether the ex post opportunism is active or passive does not necessarily change the financial consequence of the behavior that occurred. For example, if a delivery fiom the supplier does not come on time and the supply firm does not inform the buyer it is not going to come on time then this is perceived as somehow less costly than if the delivery does not come on time and the supplier assured the buyer it would come on time. Yet, in both circumstances the delivery does not come on time. By making this explicit, this research enables better quantification of the decision processes of managers and enables managers to better adjust and refine the criteria that help them make better governance 97 decisions. When confronted with active ex post opportunism managers should perhaps “take a step back” and consider the consequence of the action and a measured response rather than the active ex post opportunism itself. Thus, this research provides in-depth analysis for managers that will aid them in improving their decision-making regarding issues of ongoing governance in response to ex post opportunistic behavior by partners. Second, consider a firm that is the perpetrator of ex post opportunistic behavior. The results of this research would appear to indicate that Should a firm wish to engage in ex post opportunistic behavior then it is prudent for the firm to engage in passive ex post opportunism rather than active ex post opportunism. It is possible for a firm to maintain a relationship for a longer period of time by engaging in passive ex post opportunism, as the accumulation of passive ex post opportunism will be tolerated for longer than the accumulation of active ex post opportunism. For example, rather than lying to the buyer about the delivery aniving on time, it is better, from the perspective of the supplier, to not inform the buyer that the delivery will not arrive on time. These apparent benefits of engaging in passive ex post opportunism rather than active ex post opportunism may help to explain the phenomena known as “the dark side of close relationships.” (Anderson and Jap 2005, p.75). These authors note that many close relationships are susceptible to forces “quietly building beneath the surface of the relationship” (p.75) and that the dark side of close relationships can be subtle and not very hostile leading to the continuation of these relationships for long periods of time before exit takes place. In essence, the dark side of these relationships is firms engaging in passive ex post opportunism and as a result slowly destroying the relationship over a long period of time. 98 In addition, it would also be wise for the firm engaging in ex post opportunism to make clear to its partner what value the buyer-supplier relationship provides to the partner not engaged in ex post opportunism. Confronted with ex post opportunism in an interorganizational buyer-supplier relationship, firms consider the value in the relationship when considering how great an accumulation of ex post opportunism to tolerate. Therefore, a firm engaged in ex post opportunism Should demonstrate the value of the relationship, as the greater the value perceived by the buyer, the greater the toleration of the ex post opportunism. Limitations and Future Research Directions Although this study provides a number of useful insights, as with all research it also embodies a number of limitations that should be taken into consideration when considering the results. The first limitation of the study is with regard to the design of the study. The study only looks at the accumulation of either active ex post opportunism or the accumulation of passive ex post opportunism. However, it is more realistic for firms to engage in a combination of active and passive ex post opportunistic behaviors rather than one particular form in part to avoid reaching what epidemiologists refer to as the “tipping point” of tolerance at which point the firm that is the target of the ex post opportunism will exit the relationship. A future research direction could examine the governance response strategies to a mixture of the accumulation of active and passive ex post opportunism. Second, another limitation may be the domestic setting of the experiment and this may be one reason why participants did not appear to factor the level of strategic value into their decision-making process. The US. has been seen to be a short-terrn oriented 99 culture (Hofstede, 2003) that places emphasis on Short-term financial gain. Perhaps similar studies conducted in cultures that have a more long-term orientation may produce different results with regard to the impact of strategic value on the decision calculus of managers. Williamson (1991) acknowledges the importance of considering the institutional environment (including culture) when making theoretical predictions about responses to opportunism and this study may be a victim of not fully considering the institutional environment of the United States of America. Therefore, extending this study outside the institutional environment of the United States may be a way to extend the study in a theoretically interesting direction. Third, another limitation may be the industry and the component being sourced in the scenario. The scenario was developed in line with the extant literature and was pre- tested for realism; however, the lack of participants choosing vertical integration may be an artifact of the scenario. Microchips may be seen as a component part thus explaining the reluctance of participants to consider vertical integration as an option. A different scenario depicting the sourcing of a more specialized non-component part may result in more participants considering the option of vertical integration as a viable alternative to protect the value in the relationship. This therefore suggests that TCE is bound by industry-specific limitations with regard to the theoretical predictions it can make. Future research should be conducted in a different industry and with a different sourced component. A further limitation of this study is the use of a hypothetical, albeit realistic, scenario to test the research hypotheses rather than relying on real-life experiences of managers. Future studies could be done by examining real-life interorganizational buyer- 100 supplier relationships and examining the build up of ex post opportunism in these relationships and how quickly this build up leads to termination. Along similar lines, it may also be possible to examine cases of specific firms in a specific industry (e.g., the automotive industry) to examine the governance responses of these firms to the accumulation of ex post opportunism. Finally, it may be of interest to examine the scenario from the perspective of the proponent of the ex post opportunistic behavior. In this study, the focus was on the toleration of ex post opportunism but of course the counter to this is the perpetration of ex post opportunism. F irms that engage in ex post opportunism will wish to examine how much ex post opportunism they can engage in before their partners leave the relationship and how they can optimize their opportunistic behavior. Generally ex post opportunism has been seen as a bad thing, however, it may be of interest to consider opportunism as value neutral and examine optimal levels of opportunism that firms’ partners will tolerate. 101 APPENDICES 102 APPENDIX 1 Email From Clinical Professor of Purchasing Management to Purchasing Professionals Soliciting Initial Help With Study Best and Brightest, As you know, one of our research streams at MSU is around supplier relations / collaboration. The flip side, as it were, looks at supply chain design and governance in the face of disruptive acts either by commission or omission by either the buyer or seller. Steven Seggie, a doctoral student at MSU, is initiating a study in this area. The purpose of this email is to request your early stage support of Steven’s research by responding to email interviews. Steven intends to use the findings from these initial interviews to put together a pilot study and develop an iterative experiment with a broader SCM practitioner audience. Because of your SM expertise along with your firm’s reputation as a leader in SM, we’d like your help. Steven will contact you within the next two weeks to determine your interest and availability. Thanks in advance for your support. Best regards, XXX 103 APPENDIX 2 Follow Up Email Soliciting Specific Support From Purchasing Managers Dear XXX, 1 hope all is well. I am following up on XXX'S email to you concerning the project on management of supply chain relationships. We are very much looking forward to your participation so that a better understanding of the management of supply chain relationships and challenges to effective governance can be gained. To begin we would like to get a better understanding of behaviors that have created challenges in your supply chain relationships. Please provide 3 to 5 detailed examples of disruptive behavior both by commission (i.e. doing something either explicitly or implicitly forbidden) and by omission (i.e. not doing something either implicitly or explicitly agreed upon previously) that your supply partners have engaged in. Should you have any questions please do not hesitate to contact me. We would be grateful if we could receive your replies within 2 weeks. After the deadline we will provide a summary of all responses and ask for your comments on the full set of examples. Thanks in advance and best regards Steven H. Seggie Department of Marketing and Supply Chain Management, Michigan State University 104 APPENDIX 3 Outline of Study as Sent to Participants in Phase One Governance Response Strategies to Disruptive Acts by Suppliers Although academics have touted trust and commitment and the development of close relationships as a panacea for many of the problems between industrial buyers and suppliers, we still observe dysfunctional relationships between industrial buyers and suppliers punctuated by disruptive acts by one or both parties. These disruptive acts are both by commission (e. g., lying, breaching agreements etc.) and omission (e.g., not telling the whole truth, not accepting responsibility etc.) This study examines the responses of industrial buyers to the disruptive acts of suppliers. The responses include various ways to manage the relationship, including exiting from the relationship. The researchers argue that these disruptive acts should be treated as a cost to be weighed against the economic and strategic benefits that exist for the industrial buyers from the relationship. Also, the researchers argue that different combinations of economic and strategic benefit will elicit different patterns of responses. To investigate this issue a three-stage approach is proposed. First, the researchers will conduct iterative email interviews with a unique group of 25-30 leading purchasing professionals to develop the scenarios, elicit examples of disruptive acts (both by commission and omission), and develop the concepts of strategic and economic value. This is a key stage in the research, as poor execution of stage one will render the results 105 of stage two and three meaningless. Next, the researchers will conduct an iterative experiment that will Simulate the accumulation of disruptive acts by a supplier over a relationship and capture the responses of buyers to these acts occuning in relationships with different combinations of economic and strategic benefit. Finally, the researchers will analyze the data collected in stage two and write up the article and managerial summary. The findings of this study will help to direct managerial action by suggesting strategies for managing dysfunctional relationships that involve treating disruptive acts as a cost to be balanced against the benefits gleaned from the relationship. It will also suggest modes of exit from the relationship for firms based upon the strategic benefits perceived in the relationship, as well as strategies to put effective trust back into the relationship. 106 APPENDIX 4 Follow Up Email Soliciting Support and Reminding Participants of the Approaching Deadline Dear XXX, Hope you are well. I am just writing as a friendly reminder that the deadline is approaching for our study - the end of this week or the start of next week would be fantastic. As I mentioned before your contribution is particularly valuable for all of us in increasing understanding of the management of supply chain relationships. Thanks in advance and best regards Steven 107 APPENDIX 5 Measures of Opportunism Opportunism (by partner), Achrol and Gundlach (1999) Exaggerated needs in order to get what they desired. They were not always sincere. Altered facts in order to get what they wanted. Good faith bargaining was not a hallmark of their bargaining style. Provided a completely truthful picture when negotiating (reversed). Breached formal or informal agreements to benefit themselves. Perceived opportunism (A dapted from John 1984), Anderson (1988) The following statements are labeled 'disagree/agree' on a 1 to 7 scale. Please circle the number corresponding to how well each statement describes the situation in your territory. Our salespeople feel the company isn’t always candid with them, so they are not completely candid with the company. Our salespeople feel they sometimes have to alter the facts slightly in order to get what they need from the company. Sometimes our salespeople present facts to the company in such a way that they look good. Our salespeople feel that complete honesty does not pay when dealing with the company. Our salespeople feel they sometimes have to exaggerate their needs in order to get what they really need from the company. Our salespeople feel it is all right to do anything within their means to further their own interests. On occasion, our salespeople distort information to the company about certain things in order to protect their interests. Our salespeople sometimes promise the company they will do certain things without actually doing them later. Our salespeople always provide the company a completely truthful picture of their activities (reversed). Opportunism, Dahlstrom and Nygaard (1999) We have reason to believe that the company hides important information regarding our station. The company has not kept promises made when we entered the relationship. 108 Opportunism, Gundlach, Achrol and Mentzer (1995) Partner exaggerated needs to get what they desired. Partner was not always sincere. Partner altered facts to get what they wanted. Good faith bargaining was not a hallmark of partner's negotiation style. Partner provided a completely truthful picture when negotiating (reversed). Partner breached formal of informal agreements to their benefit. Ex Post Opportunism, Jap and Anderson (2003) When a problem occurs how often will the buyer (supplier) do the following? (1=Hardly ever, 7=Very often) They make hollow promises. They are aloof toward us. They "window-dress" their efforts to improve. They expect us to pay for more than our fair share of the costs to correct the problem. They are unwilling to accept responsibility. They make false accusations. They provide false information. They fail to provide proper notification. Opportunism, John (1984)5 Sometimes, I have to alter the facts slightly in order to get what I need. I have sometimes promised to do things without actually doing them later. Opportunism, Lee (I 998) We always provided this importer with a completely truthful picture of our business (reversed). We always carry out the duties of our relationship even if this importer does not check up on us (reversed). We have sometimes promised this importer that we would do things, even though we actually had no intention of following through. In terms of this importer, we believe that it is OK. to do anything within our means that will help further our firm’s interest. To get the necessary support from this importer, we sometimes mask the true nature of our needs. To get the needed support from this importer, we sometimes overstate the difficulties our firm faces. 5 The full scale used by John is not noted in the article; however, subsequent articles (e.g., Anderson, 1988 and Provan and Skinner, 1989) adapt John's full set of scales thus ensuring that the scales are included. 109 In order to maintain our goal (i.e., profitability, sales volume and market share), we occasionally find it necessary to neglect some of our obligations to this importer. Regardless of its impact on our business (i.e., profitability, sales volume, or market share), we always conscientiously perform our duties to this importer (reversed). Sometimes we have had to alter the facts slightly in order to get what we need from this importer. On occasion, we have had to lie to this importer about certain things in order to protect our interests. Opportunism (A dopted from John 1984), Parkhe (1993) With respect to your partner firm in the present alliance: They have always provided us a completely truthful picture of their business (reversed). Complete honesty does not pay when dealing with my partner. Sometimes my partner alters the facts slightly in order to get what they need. My partner carries out their duties even if we do not check up on them (reversed). My partner has sometimes promised to do things without actually doing them later. They seem to feel that it is OK to do anything within their means that will help further their firm's interests. Opportunism (A dapted from John I 984), Provan and Skinner (1989) I have always provided my primary supplier a completely truthful picture of my business. I feel that it is OK to do anything within my means that will finther help my own interests (reversed). Sometimes I have to alter the facts slightly in order to get what I need (reversed). I have sometimes promised to do things without actually doing them later (reversed). Complete honesty does not pay when dealing with my primary supplier (reversed). Sometimes I present facts to my primary supplier about certain things in order to protect my interests (reversed). On occasion, I have to lie to my primary supplier about certain things in order to protect my interests (reversed). My primary supplier isn’t always truthfirl with me, so I am not always completely candid with them (reversed). Sometimes I have to exaggerate my needs in order to get what I really need from my supplier (reversed). Supplier Opportunism (A dapted from John 1984; Gundlach et al. 1995) with 2 new items at end, Rokkan, Heide and Wathne (2003) On occasion, this supplier lies about certain things in order to protect their interests. This supplier sometimes promises to do things without actually doing them later. This supplier does not always act in accordance with our contract(s). This supplier sometimes tries to breach informal agreements between our companies to maximize their own benefit. 110 This supplier will try to take advantage of "holes" in our contract to further their own interest. This supplier sometimes uses unexpected events to extract concessions from our firm. Ill APPENDIX 6 Active and Passive Ex Post Opportunistic Behaviors Derived From the Measures of Opportunism Active Ex Post Opportunistic Behaviors Doing anything to further their own/their firm’s interests (Anderson 1988; Lee 1998; Parkhe 1993; Provan and Skinner 1989). Lying to protect their own interests (Lee 1998; Provan and Skinner 1989; Rokkan et al. 2003) Providing false information (J ap and Anderson 2003). Exaggerating needs to get what they desired (Achrol and Gundlach 1999; Anderson 1988; Gundlach et al. 1995; Lee 1998; Provan and Skinner 1989). Altering facts to get what they wanted (Achrol and Gundlach 1999; Anderson 1988; Gundlach et al. 1995; John 1984; Lee 1998; Parkhe 1993; Provan and Skinner 1989). Breaching formal or informal agreements to benefit themselves (Achrol and Gundlach 1999; Gundlach et al. 1995; Rokkan et al. 2003). Making false accusations (J ap and Anderson 2003). Not always being sincere (Achrol and Gundlach I999; Gundlach et al. 1995). Expecting the other party to pay for more than the fair share of the costs to correct a problem (J ap and Anderson 2003). Taking advantage of "holes" in a contract to further their own interest (Rokkan et al. 2003). Using unexpected events to extract concessions from partner firm (Rokkan et al. 2003). Passive Ex Post Opportunistic Behaviors Promising to do something and then not fulfilling the promise (Anderson 1988; Dahlstrom and Nygaard 1999; Jap and Anderson 2003; John 1984; Lee 1998; Parkhe 1993) Hiding information from one’s partner (Dahlstrom and Nygaard 1999). Neglecting to fulfill obligations to one’s partner (Lee 1998). Not accepting responsibility for one’s own actions (J ap and Anderson 2003). Not providing proper notification to one’s partner (J ap and Anderson 2003). Not telling the whole truth (Anderson 1988). 112 APPENDIX 7 Real Life Examples of Ex Post Opportunism by Suppliers: Split Into Active Ex Post Opportunism and Passive Ex Post Opportunism Active Ex Post Opportunistic Behaviors Your supplier stops a shipment due to ongoing contractual negotiations not going the way the supplier wished. You learn that contrary to your supplier agreement, your supplier is also supplying the same parts to your competitor. Due to a natural disaster your supplier informs you that it cannot deliver your order. However, you discover that the supplier is supplying your competitor at higher prices. This is contrary to your agreement that indicates that in crises the first priority of the supplier is to supply your firm. You hear that your supplier has been gossiping about the poor quality of your product to others in the industry. Your supplier complains to you that they lost business unfairly to another supplier. Upon investigation, you find that in fact the supplier lost business due to poor service quality. Your supplier provides a non-conforming part and then threatens to stop shipments if you bill the supplier to recoup costs. Your supplier sends you parts that are stamped compliant, however, upon inspection you find that they are not. Your supplier refuses to accept traditional terms and conditions. Instead trying to renegotiate at every opportunity. Your supplier accuses you of trying to hire one of its best employees. You contact your HR department and you find out that no approach has been made. Your supplier informs you that your biggest competitor is planning to introduce a new line of goods. You do some investigating and find out that your supplier is not telling the truth. Your supplier reneges on part of the contract. Your supplier takes advantage of holes in the contract to gain an advantage over you. 113 Your supplier provides a non-conforming part and then refuses to send you a new part when you request. Passive Ex Post Opportunistic Behaviors Your supplier’s delivery turns up one day later than it was supposed to. Your supplier did not inform you that it would not be on time. Faced with a sudden increase in demand you ask your supplier if they can help you meet the extra demand by providing their part for the finished good. They say yes, but then do not follow through on their promise. In line with what is allowed in the contract, you changed your order. However, your supplier delivers the old order claiming they were not informed of the new order. The supplier refuses to accept responsibility for the mistake saying that they were not informed. A supply disruption occurs but your supplier fails to communicate this to the appropriate person on your side. Your supplier fails to produce and deliver a key component on time and does not inform the buyer that it would not be on time. In one of the deliveries from your supplier, you discover that the number of parts is short by 5%. At one of your deliveries it appears that the delivery is short. You contact the supplier but they deny it is their responsibility and suggest one of your employees is to blame. You know that not to be the case. Your supplier manufacturers the product in location X, however, a fire breaks out and burns down the manufacturing location. Your supplier does not inform you of the fire and continues to ship product fiom the US where they have built up inventory. You find out about the fire from a news article. The delivery does not arrive from your supplier and when you enquire your supplier explains that they have a problem with the production line in the factory and that they had informed you by leaving a message with someone at the company. You did not receive the message and anyway normally you would expect to be informed directly by the supplier if such a thing happened. Your supplier does not invest in the quoted capacity for a program. In addition, the supplier does not inform you of this. You have paid for full capacity and when you increase demand, the supplier does not have excess capacity to fall back on. 114 You face an increase in demand from one of your customers and this necessitates your supplier working overtime. Although the norms of the relationship would dictate your supplier would usually help you, in this instance your supplier refuses to help. Your supplier told you it was going to increase the efficiency of its production line thus bringing cost savings in the future. The supplier promised the changes in 4 months; however, it appears that they have not fulfilled this promise. Your supplier promises to deliver X number of components and then under delivers. A delivery from your supplier comes late because the truck breaks down. It turns out that the supplier is not servicing the trucks regularly. Your supplier fails to ensure its own supply of raw materials therefore rendering it unable to deliver to you, the buyer. Your supplier promised to replace the driver of the truck delivering your order, as he was generally careless when unloading orders and had nearly damaged a few orders as a result. However, you notice that it is still the same driver delivering your order. Your supplier moves production from one facility to another without informing you and subsequently parts start coming to you with defects. Your supplier fails to control quality in the supplier plant resulting in supply interruption and product being put on hold. This impacts upon ability to deliver to you. Your supplier provides a non-conforming part and then does not send you a new part when you request. You find that the quality of one of the parts supplied by your supplier is substandard. Upon investigation you discover that your supplier has changed their manufacturing processes without authorization from you first. Your supplier uses an alternative raw material for the part leading to a reduction in quality. Your supplier does not inform you of this and only when you telephone to inquire do they confirm what happened. In repeated telephone conversations with your supplier you inquire as to whether everything is going fine or not. From other sources you hear that they may have some problems, however, they always say everything is fine. You suspect they are not telling the whole truth. You find out from some sources in the industry that your competitors have been regularly contacting your supplier to get information on the parts they are supplying to you. You are surprised because the supplier did not mention that your competitors had been doing this. 115 Your supplier never returns phone calls on important business matters. It is the responsibility of the supplier to ensure that the loads are packed tightly and cleanly and arrive at your factory in one piece. Your supplier appears to be neglecting this. 116 APPENDIX 8 Email to Purchasing Executives Soliciting Further Help in Phase One Dear XXX, I hope you are well. In our efforts to further understand the management of supply chain relationships we would request your valuable help once again. I have attached two documents (they are independent of one another) and as before I would like your comments on them - the questions I would like you to comment upon are provided in bold on the attached documents. Written responses are great or if you prefer I could phone you. It should only take around five minutes of your time and would be a further valuable step in our efforts to increasing the understanding of the management of supply chain relationships and challenges to effective governance. Thanks in advance and best regards Steven H. Seggie Michigan State University 117 APPENDIX 9 Scenario and Question Sent to Purchasing Managers During Phase One Question: On the whole, does the following scenario appear realistic to you? Scenario: Imagine you are a purchasing manager responsible for the purchase of microchips for a midsize electronic components manufacturer. There are multiple suppliers of microchips in the market, however, you have been frequently buying microchips from one of your suppliers for two years with no difficulties. You have made a medium amount of investments specifically dedicated to your relationship with this supplier. You can assess the performance of this supplier easily and there are no unanticipated changes in the external environment. Your demand for the microchip is steady. 118 APPENDIX 10 Question and Definitions of Strategic Value and Economic Value Question: On the whole when defining the value in a relationship with a supplier are the following definitions appropriate? (a) High economic value: substantial financial rewards to a firm from a relationship. (b) Low economic value: minimal financial rewards to a firm from a relationship. (c) High strategic value: substantial strategic rewards including substantial access to new markets, new network partners, and new resources. ((1) Low strategic value: minimal strategic rewards including minimal access to new resources, new network partners, and new resources. Il9 APPENDIX 11 Follow Up Email to Purchasing Managers Requesting Participation in the Evaluation of the Realism of Scenarios and the Appropriateness of the Definitions of Economic Value and Strategic Value Dear XXX, I hope you are well. I would again thank you for all the contributions you have made so far to our research project. This is just a gentle reminder that the deadline is approaching for you to provide feedback on the documents that I sent you last week. Thanks again for all the help you have provided so far and I have again attached the documents for your convenience. I would reiterate that it should only take around 5 minutes of your time and would be a further valuable step in our efforts to increasing the understanding of the management of supply chain relationships and challenges to effective governance. Thanks in advance and best regards Steven H. Seggie Michigan State University 120 APPENDIX 12 Finalized Scenario Incorporating Feedback From Purchasing Professionals Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been fiequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. 121 APPENDIX 13 Finalized Definitions of Strategic Value and Economic Value Incorporating Feedback From Purchasing Professionals High economic value: substantial financial benefits to a firm from a relationship. Low economic value: minimal financial benefits to a firm from a relationship. High strategic value: substantial strategic benefits including substantial access to new markets, new network partners, and new resources. Low strategic value: minimal strategic benefits including minimal access to new resources, new network partners, and new resources. 122 APPENDIX 14 Consequence, Active Ex Post Opportunism and Passive Ex Post Opportunism Table 14-1: Consequence, Active Ex Post Opportunism and Passive Ex Post Opportunism Consequence Your delivery does not turn up on time. Your supplier does not help you with extra demand. Your supplier delivers the old order not the new order. Delivery is Short. Delivery is short. Delivery is short. Active Ex Post Opportunism Your supplier told you that it would turn up on time. You ask your supplier to help you meet extra demand as is normal in your relationship. They agree, on the condition you renegotiate the supplier contract. In line with what is allowed in the contract, you changed your order. Your supplier agrees to deliver on the condition you renegotiate the supplier contract. Your supplier contacts you and informs you that the delivery coming is going to be 5% short of the contractual amount. One of your deliveries appears to be short. You contact the supplier and they falsely accuse one of your employees. Your delivery is short. You asked your supplier to invest in sufficient capacity but your supplier only agreed on the condition you renegotiated the supplier contract. 123 Passive Ex Post Opportunism Your supplier did not notify you that it would not turn up on time. You ask your supplier to help you meet extra demand as is normal in your relationship. Your supplier refuses. In line with what is allowed in the contract you change your order. Your supplier refuses to comply with the new order and delivers the old order. In one of the deliveries from your supplier, you discover that the number of parts is short by 5%. Your supplier does not inform you. One of your deliveries appears to be short. You contact the supplier and they deny it is their responsibility. Your delivery is short. You asked your supplier to invest in sufficient capacity but they refused. Table 14-1 (continued) Consequence Your supplier does not help meet increased demand. Your supplier does not increase efficiency. Your delivery does not come on time. There is gossip about the poor quality of your product. You receive parts that are non- compliant. You receive parts that have defects. Active Ex Post Opportunism You face an increase in demand from one of your customers and this necessitates your supplier working overtime. Your supplier agrees on the condition you renegotiate the supplier contract. You ask your supplier to increase the efficiency of its production. Your supplier agrees on the condition you renegotiate the supplier contract. A delivery from your supplier does not come on time because the truck breaks down. It turns out the supplier is deliberately buying and using old trucks even though the contract specifies the trucks should be no more than 5 years old. You hear that your supplier has been gossiping about the poor quality of your product to others in the industry. Your supplier sends you parts that are non-compliant. Upon inspection you realize they are stamped as compliant. Your supplier moves production from one facility to another without informing and subsequently parts start coming to you with defects. Previously your supplier had asked if they could move production, however, you had denied them the right to do this. 124 Passive Ex Post Opportunism You face an increase in demand from one of your customers and this necessitates your supplier working overtime. The norms of the relationship dictate your supplier helps you but your supplier refuses. You ask your supplier to increase the efficiency of its production. The supplier refuses. A delivery from your supplier does not come on time because the truck breaks down. It turns out that the supplier is not servicing the trucks regularly as you had thought. You hear that your supplier is not defending the quality reputation of your product to others in the industry. Your supplier sends you parts that are non-compliant. Upon inspection you realize they are not stamped as compliant. Your supplier moves production from one facility to another without informing you and subsequently parts start coming to you with defects. Table 14-1 (continued) Consequence You have delivery problems You don’t have the compliant part. You are receiving sub-standard parts. Active Ex Post Opportunism Your supplier has stopped controlling quality in the supplier plant resulting in supply interruption and product being put on hold. This impacts upon ability to deliver to you. You supplier provides a non- conforming part and refuses to send a new one when you request. You find that the quality of one of the parts supplied by your supplier is substandard. Upon investigation you discover that your supplier has changed their manufacturing processes without telling you, even though you previously told them they could not change their manufacturing processes. 125 Passive Ex Post Opportunism Your supplier fails to control quality in the supplier plant resulting in supply interruption and product being put on hold. This impacts upon ability to deliver to you. Your supplier provides a non- conforming part and then promises to send a new one. However, they still have not done so. You find that the quality of one of the parts supplied by your supplier is substandard. Upon investigation you discover that your supplier has changed their manufacturing processes without telling you. APPENDIX 15 E-mail to Purchasing Managers Requesting They Identify Active and Passive Ex Post Opportunistic Behaviors Dear XXX, I hope you are well. Thank you again for your continued support with our research study. Please find attached a document listing consequences and opportunistic behaviors. I would be grateful if you could identify the behaviors as either active opportunism (i.e., by commission) or passive ex post opportunism (i.e., by omission). In addition, please fell free to make any suggestions as to how I may improve the clarity of the document. Best regards Steven 126 APPENDIX 16 Pre—Test of Consequences Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. Please rate the following from 1 to 7: where 1 indicates a very low cost to you, 4 neither high nor low cost to you, while 7 indicates a very high cost to you. (a) You receive microchips that do not meet contractual standards. (b) Your delivery contains defective microchips. (c) Your delivery does not arrive on time. ((1) You receive less microchips in the delivery than specified in your contract. (e) You receive microchips that are not compliant. APPENDIX 17 Results of Analysis of Variance for Equivalence of Consequences Table 17-1: Analysis of Variance (AN OVA) for Consequences Sum of (If Mean Square F Significance Sjuares Between Groups 5.060 4 1.265 0.297 0.879 Within Groups 404.700 95 4.260 Total 409.760 99 128 APPENDIX 18 Pre—test of Ex Post Opportunistic Behaviors Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. Please rate the following behaviors from I to 7: where 1 indicates a very low intensity, 4 neither high nor low intensity, while 7 indicates a very high intensity. When a problem occurs in the relationship: (a) Your supplier does not tell you the whole truth. (b) Your supplier provides you with false information. (c) Your supplier lies to you. ((1) Your supplier alters facts. (e) Your supplier makes false accusations. (f) Your supplier is not sincere. (g) Your supplier violates agreements. (h) Your supplier hides information from you. 129 (i) Your supplier does not accept responsibility for his/her actions. (j) Your supplier does not provide proper notification I30 APPENDIX 19 Results of Analysis of Variance for Active Versus Passive Opportunistic Behaviors Table 19-1: Analysis of Variance (ANOVA) Active Versus Passive Opportunistic Behaviors Sum of DF Mean square F Significance Squares Between Groups 71.053 1 71.053 122.397 0.000 Within Groups 114.942 198 0.581 Total 185.995 199 I31 APPENDIX 20 Results of Analysis of Variance of Intensity of Active Ex Post Opportunistic Behaviors Table 20-1: Analysis of Variance (AN OVA) of Intensity of Active Ex Post Opportunistic Behaviors Sum of DF Mean square F Significance Squares Between Groups 4.842 5 0.968 2.894 0.017 Within Groups 38.150 114 0.335 Total 42.992 1 l9 I32 Table 20-2: Multiple Comparisons TUKEY HSD Mean 95% Confidence Interval Variable 1 Variable 2 Difference Standard Significance (Variable 1- Error Variable 2) Lower Upper Bound ‘Bound 1 2 mOSOO .18293 L000 a5803 .4803 3 .1500 .18293 .963 A3803 .6803 4 .4500 .18293 .145 40803 .9803 5 .2500 .18293 .747 a2803 .7803 6 21500 .18293 .963 =6803 .3803 2 1 .0500 .18293 1.000 a4803 .5803 3 .2000 .18293 .883 n3303 .7303 4 .5000 .18293 .077 m0303 L0303 5 .3000 .18293 .574 a2303 .8303 6 a1000 .18293 .994 a6303 .4303 3 1 nISOO .18293 .963 a6803 .3803 2 a2000 .18293 .883 A7303 .3303 4 .3000 .18293 .574 a2303 .8303 5 .1000 .18293 .994 A4303 .6303 6 A3000 .18293 .574 AS303 .2303 4 1 a4500 .18293 .145 A9803 .0803 2 a5000 .18293 .077 -L0303 .0303 3 a3000 .18293 .574 n8303 .2303 5 22000 .18293 .883 a7303 .3303 6 46000 .18293 .017 -L1303 n0697 5 l «2500 .18293 .747 27803 .2803 2 a3000 .18293 .574 A8303 .2303 3 21000 .18293 .994 a6303 .4303 4 .2000 .18293 .883 n3303 .7303 6 A4000 .18293 .252 49303 .1303 6 1 .1500 .18293 .963 43803 .6803 2 .1000 .18293 .994 a4303 .6303 3 .3000 .18293 .574 «2303 .8303 4 .6000 .18293 .017 .0697 L1303 5 .4000 .18293 .252 a1303 .9303 * The mean difference is significant at the 0.05 level. N. Where 1 is ‘Your supplier lies to you, 2 is ‘Your supplier provides you with false information’, 3 is ‘Your supplier alters facts’, 4 is ‘Your supplier makes false accusations’, 5 is ‘Your supplier is not sincere’ and 6 is ‘Your supplier violates agreements’. 133 APPENDIX 21 Results of Analysis of Variance of Intensity of Passive Opportunistic Behaviors Table 21-1: Analysis of Variance (ANOVA) of Intensity of Passive Opportunistic Behaviors Sum of DF Mean square F Significance Squares Between Groups I 1.050 3 3.683 4.597 0.005 Within Groups 60.900 76 0.801 Total 71 .950 79 134 Table 21-2: Multiple Comparisons TUKEY HSD Mean 95% Confidence Interval Variable 1 Variable 2 Difference Standard Significance (Variable 1- Error Variable 2) Lower Upper Bound Bound I 2 -.9500 .28308 .007 -1.6936 -.2064 3 -. 1000 .28308 .985 -.8436 .6436 4 -.2500 .28308 .814 -.9936 .4936 2 1 .9500 .2 8308 .007 .2064 1.6936 3 .8500 .28308 .019 .1064 1.5936 4 .7000 .2 8308 .072 -.0436 1.4436 3 1 .1000 .28308 .985 -.6436 .8436 2 -.8500 .28308 .019 -1.5936 -.1064 4 -.1500 .28308 .952 -.8936 .5936 4 1 .2500 .28308 .814 -.4936 .9936 2 -.7000 .28308 .072 -l .4436 .0436 3 .1500 .28308 .952 -.5936 .8936 Where I is ‘Your supplier hides injbrmation from you, 2 is ‘Your supplier does not accept responsibility for his/her actions’, 3 is ‘Your supplier does not provide proper notification ', and 4 is ‘Your supplier does not tell you the whole truth. ’ 135 APPENDIX 22 Examples of Active and Passive Ex Post Opportunistic Behaviors With Consequences Passive Ex Post Opportunism (a) In a delivery you receive fewer microchips than Specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand elsewhere leading to your shortage. (b) A delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. (c) In a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. (d) Upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non- compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. I36 (e) Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Subsequently you learn from a reliable source that your supplier has changed production facilities and you suspect this may be the cause. In conversation with your supplier, your supplier has not informed you about the change. Active Ex Post Opportunism (a) In a delivery from your supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that, in violation of your contract with them, they shorted you as they had to meet extra demand elsewhere. (b) A delivery from your supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. (c) In a delivery from your supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that, in violation of your contract with them, they have changed the set up of the production line causing some problems on the production line leading to these defects. 137 ((1) Upon inspection of a delivery from your supplier you notice some of the microchips are not compliant. You check and they are mislabeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. (e) Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Your supplier informs you that, in violation of your contract with them, they have changed production facilities and some problems led to the microchips not meeting the standard. 138 APPENDIX 23 Pretest of Treatments for Scenario Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments Specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. Please rate the following examples from 1 to 7: where 1 indicates a very low intensity, 4 neither high nor low intensity, while 7 indicates a very high intensity. (a) In a delivery you receive fewer microchips than Specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. (b) A delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. I39 (c) In a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. ((1) Upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non- compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. (e) Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Subsequently you learn from a reliable source that your supplier has changed production facilities and you suspect this may be the cause. In conversation with your supplier, your supplier has not informed you about the change. (f) In a delivery from your supplier you receive fewer microchips than Specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier inforrrrs you that, in violation of your contract with them, they shorted you as they had to meet extra demand elsewhere. (g) A delivery from your supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. 140 (h) In a delivery from your supplier you receive some microchips with defects. One 0) of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that, in violation of your contract with them, they have changed the set up of the production line causing some problems on the production line leading to these defects. Upon inspection of a delivery from your supplier you notice some of the microchips are not compliant. You check and they are mislabeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Your delivery contains some microchips that do not meet the contractual standard. One of your team contacts the supplier and the supplier agrees to send replacements. Your supplier informs you that, in violation of your contract with them, they have changed production facilities and some problems led to the microchips not meeting the standard. 141 APPENDIX 24 Results of Analysis of Variance of Intensity of Passive Opportunistic Behaviors and Consequences Table 24-1: Analysis of Variance (ANOVA) of Intensity of Passive Opportunistic Behaviors and Consequences Sum of df Mean square F Significance Squares Between Groups 59.700 4 14.925 30.135 0.000 Within Groups 47.050 95 0.495 Total 106.750 99 I42 Table 24-2: Multiple Comparisons TUKEY HSD Mean 95% Confidence Interval Variable 1 Variable 2 Difference Standard Significance (Variable 1- Error Variable 2) Lower Upper Bound Bound l 2 .30000 .22255 .662 -.3189 .9189 3 -.05000 .22255 .999 -.6689 .5689 4 .45000 .22255 .264 -.1689 1.0689 5 -1.70000* .22255 .000 -2.3189 -1 .0811 2 1 -.30000 .22255 .662 -.9189 .3189 3 -.35000 .22255 .518 -.9689 .2689 4 .15000 .22255 .962 -.4689 .7689 5 -2.00000* .22255 .000 -2.6189 -I.3811 3 1 .05000 .22255 .999 -.5689 .6689 2 .35000 .22255 .518 -.2689 .9689 4 .50000 .22255 .172 -.1189 1.1189 5 -I .65000* .22255 .000 -2.2689 -1.0311 4 1 -.45000 .22255 .264 -1.0689 .1689 2 -.15000 .22255 .962 -.7689 .4689 3 -.50000 .22255 .172 -1.1189 .1189 5 -2.15000* .22255 .000 -2.7689 -1.5311 5 1 1.70000* .22255 .000 1.0811 2.3189 2 200000“ .22255 .000 1.3811 2.6189 3 165000“ .22255 .000 1.0311 2.2689 4 215000“ .22255 .000 1.5311 2.7689 * The mean difference is significant at the 0.05 level. N. Where variables 1 to 5 are the passive ex post opportunistic behaviors and consequences from Appendix 22 in the same order as in Appendix 22. 143 APPENDIX 25 Results of Analysis of Variance of Intensity of Active Opportunistic Behaviors and Consequences Table 25-1: Analysis of Variance (AN OVA) of Intensity of Active Opportunistic Behaviors and Consequences Sum of df Mean square F Significance Smiares Between Groups 1.640 4 0.410 1.791 0.137 Within Groups 21.750 95 0.229 Total 23.390 99 144 APPENDIX 26 Results of Analysis of Variance for Active Versus Passive Opportunistic Behaviors and Consequences Table 26-1: Analysis of Variance (ANOVA) for Active Versus Passive Opportunistic Behaviors and Consequences Sum of (If Mean square F Significance Squares Be’wee" 140.625 1 140.625 335.884 0.000 Grorqrs W‘m‘“ 66.150 158 0.419 Groups Total 206.775 159 145 APPENDIX 27 Script for Pilot test Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. I46 APPENDIX 28 Script for Active Ex Post Opportunism Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been fiequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. In a delivery you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you, as they had to meet extra demand. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. I47 4 weeks pass without any problems. Then a delivery does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in—house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. In a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that, in violation of your contract with them, they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 148 4 weeks pass without any problems. Then upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are mislabeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. Then, in a delivery you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in—house. ((1) Exit the relationship and find a new supplier. 149 4 weeks pass without any problems. Then upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. Then, in a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. (d) Exit the relationship and find a new supplier. 150 4 weeks pass without any problems. Then, a delivery does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (3) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 151 APPENDIX 29 Script for Passive Ex Post Opportunism Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments Specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. In a delivery you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 152 4 weeks pass without any problems. Then, a delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. Then, in a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 153 4 weeks pass without any problems. Then upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. Then, in a delivery you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 154 4 weeks pass without any problems. Then upon inspection of a delivery you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 4 weeks pass without any problems. Then, in a delivery you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn fi'om a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 155 4 weeks pass without any problems. Then a delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Purchase the supplier firm and produce microchips in-house. ((1) Exit the relationship and find a new supplier. 156 APPENDIX 30 Post-Phase Three Questions (1) Why did you exit the relationship with the supplier at this point? (2) How many years have you been working in purchasing? (3) What industry do you deal with? (4) What are the approximate sales of your company? (5) What's your highest level of formal education? 157 APPENDIX 3] Script for Active Ex Post Opportunism High Economic Value High Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive substantial financial benefits from the relationship with this supplier and you also receive substantial strategic benefits including access to new markets, new network - partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you, that in violation of your contract with them, they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. 158 ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 159 (0) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. 160 (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. 161 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. I62 APPENDIX 32 Script for Active Ex Post Opportunism Low Economic Value Low Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive minimal financial benefits from the relationship with this supplier and you also receive minimal strategic benefits including minimal access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. I63 ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in—house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery fi'om this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 164 (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. I65 (b) Continue the relationship but make efforts to solve the problem. (0) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. I66 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 167 APPENDIX 33 Script for Passive Ex Post Opportunism High Economic Value High Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive substantial financial benefits from the relationship with this supplier and you also receive substantial strategic benefits including access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than Specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from the same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 169 (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. Do you: (a) Continue the relationship as if nothing happened. I70 (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. 17] Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You Still receive substantial financial benefits and substantial strategic benefits from your relationship with this supplier. Then a delivery does not arrive on time. Your supplier did not infonn you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. APPENDIX 34 Script for Passive Ex Post Opportunism Low Economic Value Low Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive minimal financial benefits from the relationship with this supplier and you also receive minimal strategic benefits including minimal access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. I73 ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from the same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 174 (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your Shortage. Do you: (a) Continue the relationship as if nothing happened. I75 (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements anive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. 176 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and minimal strategic benefits from your relationship with this supplier. Then a delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 177 APPENDIX 35 Post-Phase Four Questions (1) Why did you exit the relationship with the supplier at this point? (2) How many years have you been working in purchasing? (3) What industry do you currently work in? (4) What are the approximate sales of your company? (5) What's your highest level of formal education? (6) As you noticed one of the choices was buying the supply firm and producing microchips in-house. Why did you not choose this option? (Only asked if participant did not choose this option) (7) AS you probably noticed we are interested in the level of economic value and strategic value in a relationship. How do the levels of strategic and economic value impact upon the decisions you made in the scenario? Is there any trade-off between strategic value and economic value? 178 APPENDIX 36 Script for Active Ex Post Opportunism High Economic Value Low Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. Your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive substantial financial benefits from the relationship with this supplier; however, you receive minimal strategic benefits including minimal access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. I79 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 180 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements anive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 181 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements anive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. 182 (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. I83 APPENDIX 37 Script for Active Ex Post Opportunism Low Economic Value High Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. Your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive minimal financial benefits from the relationship with this supplier; however, you receive substantial strategic benefits including substantial access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. 184 (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 185 (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements anive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in—house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery fiom this same supplier you receive fewer microchips than specified in your contract. One of your employees contacts the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, your supplier informs you that in violation of your contract with them they shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. I86 (b) Continue the relationship but make efforts to solve the problem. (0) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from this same supplier you notice some of the microchips are not compliant. You check and they are labeled as compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, your supplier informs you that in violation of your contract with them they have changed the set up of the production line causing some problems on the production line leading to these defects. I87 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier had assured you it would arrive on time. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. I88 APPENDIX 38 Script for Passive Ex Post Opportunism High Economic Value Low Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come from this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive substantial financial benefits from the relationship with this supplier, however, you receive minimal strategic benefits including minimal access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. 189 (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from the same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 190 (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. Do you: (a) Continue the relationship as if nothing happened. I91 (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits fiom your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source fi'om a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. I92 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive substantial financial benefits and minimal strategic benefits from your relationship with this supplier. Then a delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. I93 APPENDIX 39 Script for Passive Ex Post Opportunism Low Economic Value High Strategic Value Treatment Imagine you are a purchasing manager responsible for acquiring microchips for a midsize electronic components manufacturer. There are no unanticipated changes in the external environment, for example, your demand for the microchip is steady and you are able to predict relevant technological changes. There are multiple qualified suppliers of microchips in the market. You have been frequently buying microchips from one of your suppliers for two years with no problems. Deliveries come fiom this supplier twice a week. Although you have made some investments specifically dedicated to your relationship with this supplier, these do not completely bind you to the relationship. You are able to assess the performance of this supplier easily. You receive minimal financial benefits from the relationship with this supplier, however, you receive substantial strategic benefits including substantial access to new markets, new network partners, and new resources. In a delivery from this supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips arrive. Subsequently, you learn from a reliable source external to your supplier that your supplier shorted you as they had to meet extra demand elsewhere. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. 194 (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then, a delivery from this same supplier does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from the same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements anive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. 195 (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (0) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive fewer microchips than specified in your contract. One of your employees telephones the supplier and the supplier agrees to send the rest. The microchips anive. Subsequently, you learn from a reliable source external to your supplier that your supplier had to meet extra demand leading to your shortage. Do you: (a) Continue the relationship as if nothing happened. I96 (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then upon inspection of a delivery from the same supplier you notice some of the microchips are not compliant. You check and they are not labeled as either compliant or non-compliant. One of your employees contacts the supplier and the supplier agrees to send replacements. The compliant replacements arrive. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. ((1) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then, in a delivery from this same supplier you receive some microchips with defects. One of your employees contacts the supplier and the supplier agrees to send replacements. The replacements arrive and are ok. Subsequently, you learn from a reliable source external to your supplier that your supplier has problems on the production line leading to these defects. I97 Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 4 weeks pass without any problems. You still receive minimal financial benefits and substantial strategic benefits from your relationship with this supplier. Then a delivery does not arrive on time. Your supplier did not inform you it was going to be late. One of your team contacts the supplier and your supplier tells you it is on its way. It arrives. Do you: (a) Continue the relationship as if nothing happened. (b) Continue the relationship but make efforts to solve the problem. (c) Buy the supplier firm and produce microchips in-house. (d) Exit the relationship and source from a different supplier. 198 APPENDIX 40 Analysis of Passive Versus Active Treatment Groups (Hypothesis 1) Table 40-1: Test of Homogeneity of Variance (Hypothesis 1) levene Statistic dfl d12 Significance 1.030 1 88 0.313 Table 40-2: Descriptive Statistics (Hypothesis 1) 95% Confidence Interval for Mean Standard Standard Lower Upper N Mean Deviation Error Bound Bound Minimum Maximum Passive 45 4.0000 1.04447 0.15570 3.6862 4.3138 1.00 7.00 Active 45 2.9778 0.89160 0.13291 2.7099 3.2456 1.00 5.00 Total 90 3.4889 1.09385 0.11530 3.2598 3.7180 1.00 7.00 Table 40-3: Analysis of Variance (ANOVA) (Hypothesis 1) Sum of DE Mean square F Significance Squares Between Groups 23.511 1 23.51 1 24.934 0.000 Within Groups 82.978 88 0.943 Total 106.489 89 I99 APPENDIX 41 Analysis of Active Ex Post Opportunism High Economic Value High Strategic Value Versus Active Ex Post Opportunism Low Economic Low Strategic Value Treatment Groups (Hypothesis 2a) Table 41-1: Test of Homogeneity of Variance (Hypothesis 2a) Levene Statistic dfl df2 Significance 1.254 1 88 0.266 Table 41-2: Descriptive Statistics (Hypothesis 2a) 95% Confidence Interval for Mean Standard Standard Lower Upper N Mean Deviation Error Bound Bound Minimum Maximum Active HH 45 3.9333 1.03133 0.15374 3.6235 4.2432 2.00 8.00 Active LL 45 2.8000 1.12006 0.16697 2.4635 3.1365 1.00 5.00 Total 90 3.3667 1.21276 0.12784 3.1127 3.6207 1.00 8.00 Table 41-3: Analysis of Variance (ANOVA) (Hypothesis 2a) Sum of DF Mean square F Significance Squares Between Groups 28.900 1 28.900 24.933 0.000 Within Groups 102.000 88 1.159 Total 130.900 89 200 APPENDIX 42 Analysis of Passive Ex Post Opportunism High Economic Value High Strategic Value Versus Passive Ex Post Opportunism Low Economic Low Strategic Value Treatment Groups (Hypothesis 2b) Table 42-1: Test of Homogeneity of Variance (Hypothesis 2b) Levene Statistic dfl df2 Significance 15.080 1 88 0.000 Table 42-2: Descriptive Statistics (Hypothesis 2b) 95% Confidence Interval for Mean Standard Standard Lower Upper N Mean Deviation Error Bound Bound Minimum Maximum Passive HH 45 4.7333 2.10411 0.31366 4.1012 5.3655 1.00 9.00 Passive LL 45 2.9111 0.92496 0.13789 2.6332 3.1890 1.00 5.00 Total 90 3.8222 1.85774 0.19582 3.4331 4.2113 1.00 9.00 Table 42—3: T-Test for Equality of Means Equal Variances Not Assumed (Hypothesis 2b) DF t Sigrificance 60.394 5.318 0.000 Table 42-4: Analysis of Variance (ANOVA) (Hypothesis 2b) Sum of DF Mean square F Significance Squares Between Groups 74.711 1 74.711 28.285 0.000 Within Groups 232.444 88 2.641 Total 307.156 89 201 References Achrol, Ravi S. and Gregory T. 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